Bollinger Bands were created by market technician John Bollinger. I indicated on the chart where bitcoin closed outside of the bands as a possible turning point for both the rally and the selloff. I'm not sure if this is because there aren't many people interested or if other traders stay out of the bands arena because John is so actively evangelizing the bands. The books I did find were written by unknown authors and honestly, have less material than what I have composed in this article.
The construction of trading bands is relatively simple. Bands are placed above and below an average often using a fixed p.
Prices that move beyond Bollinger bands often do so at their own peril as this look at Hormel suggests. Contracting Bollinger Bands on a weekly chart of the year note yield suggest the potential for greater volatility in the near term.
Palladium has been lagging gold lately, and the resolution of the current consolidation holds the key to the future. Trading has gotten quiet in United Parcel Service, and such periods often precede a sizable directional move. Battle of the bands! Two distinctly different, yet similar trading tools. Bollinger Bands by Stuart P.
Bollinger Bands, used in combination wit. John Bollinger Of Bollinger Bands Fame by Jayanthi Gopalakrishnan Unlike many technicians who start out with degrees in business, veteran analyst John Bollinger, the president and founder of Bollinger Capital Management, started out with a de. You can increase your odds of adapting your strategy to the market type in effect. Bollinger Bands are a technical trading tool created by John Bollinger in the early s.
They arose from the need for adaptive trading bands and the observation that volatility was dynamic, not static as was widely believed at the time. Bollinger Bands can be used in most time frames, from very short-term periods, to hourly, daily, weekly or monthly. Bollinger Bands answer a question: Are prices high or low on a relative basis? By definition price is high at the upper band and price is low at the lower band.
That bit of information is incredibly valuable. Notice that this M-top is more complex because there are lower reaction highs on either side of the peak blue arrow. This evolving top formed a small head-and-shoulders pattern. Moves above or below the bands are not signals per se.
On the face of it, a move to the upper band shows strength, while a sharp move to the lower band shows weakness. Momentum oscillators work much the same way. Overbought is not necessarily bullish. It takes strength to reach overbought levels and overbought conditions can extend in a strong uptrend. Think about it for a moment. The upper band is 2 standard deviations above the period simple moving average. It takes a pretty strong price move to exceed this upper band.
An upper band touch that occurs after a Bollinger Band confirmed W-Bottom would signal the start of an uptrend. Just as a strong uptrend produces numerous upper band tags, it is also common for prices to never reach the lower band during an uptrend. The day SMA sometimes acts as support. In fact, dips below the day SMA sometimes provide buying opportunities before the next tag of the upper band. First, notice that this is a strong surge that broke above two resistance levels.
A strong upward thrust is a sign of strength, not weakness. Trading turned flat in August and the day SMA moved sideways. Prices and the day SMA turned up in September. Overall, APD closed above the upper band at least five times over a four month period. Dips below are deemed oversold and moves back above signal the start of an oversold bounce green dotted line.
The upper band tag and breakout started the uptrend. CCI then identified tradable pullbacks with dips below This is an example of combining Bollinger Bands with a momentum oscillator for trading signals. Chart 7 shows Monsanto MON with a walk down the lower band.
The stock broke down in January with a support break and closed below the lower band. From mid-January until early May, Monsanto closed below the lower band at least five times. Notice that the stock did not close above the upper band once during this period. The support break and initial close below the lower band signaled a downtrend.
This system triggered two good signals in early As such, they can be used to determine if prices are relatively high or low. Technically, prices are relatively high when above the upper band and relatively low when below the lower band. However, relatively high should not be regarded as bearish or as a sell signal. Likewise, relatively low should not be considered bullish or as a buy signal. Prices are high or low for a reason. As with other indicators, Bollinger Bands are not meant to be used as a stand-alone tool.