Yeah, it does seem a little oxymoronic doesn’t it...a standard deviation, LOL. I’m mathematically challenged unless there’s a dollar sign in front of it and have never studied stats, but I’ll give ‘er a go from my understanding of it.
The central line is a simple moving average for a certain period, I prefer 20 for shorter term trading. Now for the deviant part. Basically if you add all of the data points for price and divide by the number of points, you’ll get the arithmetical mean which you subtract from each of the data points. OK? Then, for some ungodly reason you square each of them (I guess it’s to get rid of the negative numbers). You add them up like the price points before and divide them by the number of periods. When you find the square root of that, you’ve got a number. This is the standard deviation and statisticians say you can measure volatility with it; who am I to argue? Read, "risk" for "volatility" et voila, n'est ce pas?
For 20 days and up, Bollinger (I think his brother played with “Phil ‘n the Blanks”) recommends doubling the standard deviation and somewhat less for shorter periods. You put that point equidistant above and below the SMA. Get them moving and you’ve got bands. This is why I was saying I think you’d need pretty consistent data, otherwise you’d throw the time thing out of whack. There's probably other reasons I'm not aware of.
Actually, the ones I use are the so-called Better Bollinger Bands. The formula is available here nt-tech.com.au
I’ve been trying to get a handle on this TA thing for awhile now, it's just that I get such a kick out of it when it comes out right. It's just one more tool, but a good one I think.
BTW, have you noticed CGM.V? I found it through a MetaStock exploration for stocks moving out of channels. Quite a love affair the National Bank seems to be having with them. But nobody else really seems to want to dance. According to their financial statements they do seem to depend upon the kindness of strangers to pay their wages and exploration costs...maybe a little pump going to get some financing? FWIW.
Hasta luego, have a great weekend
Lenny |
