Three indicators that work best with Bollinger bands

Bollinger bands, as you might know is an indicator used in technical analysis. The Bollinger bands are very good in depicting both trend as well as volatility. Traders often use Bollinger bands either as a trend following or purely as a volatility indicator. Depending on which of these methods you choose, the trading set up and rules differ quite a bit.

Some prefer to use the Bollinger bands as a way to enter the trend. Others prefer to merely trade the breakouts or range trading. Regardless of what methods you follow, the Bollinger bands indicator is simple and easy to use. In some cases, traders tend to use multiple instances of the same indicator, but with different settings.

Developed by John Bollinger, the Bollinger bands have stood the test of time. It is one of the standard indicators that you will find on any trading or charting platform of your choice. The Bollinger bands are also widely used in many trading strategies as well as in automated trading systems too.

In many cases though, the indicators that are used in a trading strategy along with a Bollinger band tend to be redundant. The basic idea behind using two or more indicators in a trading strategy is to get different views of the market.

In this article, you will learn about what indicators complement well with the Bollinger bands.

The Average Directional Movement (ADX) Indicator

The Average Directional movement indicator or ADX for short is an oscillator. Its primary use is to signal the trend strength. Based on the movements between the DI+ and DI- and then looking at the ADX line itself, traders can understand whether the trend in the market is strong or not.

Average Directional Movement Index with Bollinger bands

When you combine the ADX indicator alongside the Bollinger band, it can give a great combination of different views of the market. Think about knowing the direction of the breakout, the level of volatility as well as the strength of the breakout?

Complimenting the Bollinger bands, the ADX indicator can act as an additional confirmation if price continuation in the direction of the breakout is strong or not. When used smartly, the Bollinger band and ADX indicators together can signal you toward potential strong moves in the markets. Additionally, the Bollinger band expansion and contraction can also help to keep you out of the markets when it is ranging.

The Relative Strength Index

Want to trade divergences better? Then look no further than the Bollinger band and the RSI combination. Divergences are powerful indicators that can signal either a correction or a trend change. They are easy to spot in hindsight but trading them in real time can be quite a challenge.

Bollinger bands with RSI - Divergence

Using a combination of the RSI and the Bollinger bands, traders are able to fine tune their skills when it comes to divergence trading. The main trick is in looking at the slope of the Bollinger bands and spotting for divergence opportunities.

While it takes a bit of patience to pull the trigger on the trade, this method of trading puts you in a unique position. If you are looking for the most simplest trading systems of all, then look no further than the Bollinger band and the Relative Strength index combination.

When the Relative strength index signals divergences, you will often see prices trading near one of the outer Bollinger bands. Looking at the volatility and the slope of the Bollinger band, you will be able to better gauge if the divergence will result in a reversal or not.

The Heiken Ashi Candlesticks

Not a technical indicator in the true sense, the Heiken Ashi candlesticks are merely another form of the Japanese candlesticks. Yet, they exhibit trends in prices very neatly and are also visually appealing. Traders use the Heiken Ashi candlesticks in a variety of trading systems.

A combination of the Heiken Ashi candlesticks with Bollinger bands can make for a great short term trend following strategy.

Heiken Ashi candlesticks with Bollinger bands

As you might already know, you can expect a strong move in the markets after the Bollinger band contracts. By applying the Heiken Ashi candlesticks, you can easily further validate the trend direction and strength. The Heiken Ashi candlesticks will allow you to stay for much longer in the trade, based on the initial indicators from the Bollinger bands themselves.

The above three indicators are just one of the many other custom indicators that can be used in combination with the Bollinger bands. But we choose these three because they are the standard indicators and also widely available.

So regardless of which trading or charting platform you are using, you can easily use the above indicators with Bollinger bands.