Abort Big Losses by Using Bollinger Bands to Monitor Exits

You’re aboard an Apollo spacecraft on the launch pad, and the countdown has finally reached the final seconds. Looking at your comrades, you exchange a knowing yet nervous glance.

This is it – with a shudder, massive pumps send fuel to the massive Saturn rockets. In no time, you’ll be rocketed into space. Glancing ahead, you have your mission clock, gauges that tell you your trajectory, and yes – your abort level. While your options are limited at that stage – at least there’s a way out.

In every market, once you’re committed with an entry, with your own cash serving as the fuel that’s pumped in – you can monitor your abort options using Bollinger Bands. Doing so helps you set reliable targets on where to profit – and where to bail if needed.

A safety lever in every trading platform that’s often overlooked

Being strapped to the top of a Saturn V rocket had to have been a humbling place to be. Your spot would have been around 360 feet off the ground and around 90,000 pounds of payload, and three stages of the world’s most combustible fuel – all just a few feet behind you. Best to have a good sense of your options should something go wrong.

When the market opens and volume is reaching peak intensity, you really need to know what your options are, especially as you entertain an entry. Bollinger Bands are an excellent tool for doing just that.

Created in the 1980s, these bands, created by John Bollinger, provide definition of the high and low ranges of any given market price – for the designated period that you set. There are three curves drawn in relation to market prices. The middle band will tell you the intermediate trend – usually a simple moving average – which serves as the base for the upper and lower bands. The range between the upper and lower bands is determined by market volatility – typically the standard deviation of the same data that was used for the middle average.

When making an entry, it’s critical to know where you’re at in relation to the three, easy-to-follow Bollinger Bands. This can give you a ready-to-use system for monitoring the launch and flight of your trade – especially if you need to abort.

Warning signs that your trade’s mission is about to explode

When you reach the five-minute mark in any launch, a series of five abort modes become available to you – one following the other as you enter into orbit. Astronauts are watching instrumentation very closely for any signs of primary rocket failure or any cabin compromise. Needless to say, none of the options are all that appealing.

Thanks to Bollinger Bands, you only need to keep an eye on price and where you’re at relative to the range. A solid entry on either buy or sell side should be pegged right at the edge of one of the bands since that’s the first indication that you’re dealing with a price level that’s pressing/challenging the average.

Know whether it's time to stay in the trade or bail with a timely abort using Bollinger Bands.

Know whether it’s time to stay in the trade or bail with a timely abort using Bollinger Bands.

Watching the bands closely and comparing their position will tell you if you should be reaching for the abort lever – or tightening your harness straps for the ride.

What to look for when monitoring an emergency exit

If any Apollo mission could have used the abort lever, it was Apollo 13. Just about everything that could have gone wrong – did go wrong. Unfortunately all five of the abort phases had passed by the time the mission found its way into orbit and into real issues.

Fortunately, you don’t have to wait until your trade is in orbit and suffering massive losses before aborting – using Bollinger Bands. As the upper and lower bands evolve to create an envelope – you can keep an eye on their overall direction in relation to your trade.

Once in, you’re primarily watching for band expansion (or contraction) and how quickly price travels – either in with the prevailing trend or across the band’s range. Note our ES example here. Periods of consolidation provide narrow range bands that make for reliable reversals. When the bands explode or expand – you’re dealing with a trend that’s ideal for continuations.

When you see the bands move in the opposite direction of your intended entry, pull the lever and rocket out of that trade. For higher probability results, set targets at the middle line and then at the opposing far line (upper or lower) across from your entry.

Safety that comes with prior price performance

Astronauts actually went into quarantine for 21 days before launch. This was on the heels of years of preparation – leading to the moment of launch. Needless to say – nobody wanted to abort when the final moment came.

The same is true for many retail traders. While many love to use Bollinger Bands to track entries at the edges – few seem to want to exit even when price challenges the edges. Even more shocking, many retail traders breeze right by Bollinger Bands in favor of other indicators.

The beauty of the Bollinger Bands sits in the fact that they are based on price action that’s actually happened in the past. This intelligence arms you with ranges that can be leaned on – especially for short-term reversal points and continuation conditions.

Three abort levels that can save your account

Among the chatter you’ll hear over the radio during launch – it’s Houston telling you the current abort mode that you’re in. Basically, your shrinking list of options to bail from mission control – while you simply acknowledge – with nothing to really do but wait or pull the lever.

Using Bollinger Bands you don’t have to simply wait once you’re strapped into a trade. Actively monitor your entry by watching how price oscillates within the bands. Rapid acceleration from one end of the range to the other will tell you that you’re potentially headed for a breakout. Keep an eye on volume, and if you’re waiting on a reversal – simply sit tight.

Price grinding along within a tight narrow set of bands with average volume tells you that a reliable channel has been set. Prepare to bounce entries at the edges and plot your targets at the middle to play it safe on scalps – or on the opposite end for full swings.

Keep an eye on your options and be prepared to abort with glory if need be.

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