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Technology Stocks : WDC/Sandisk Corporation
WDC 174.98+5.2%Dec 18 3:59 PM EST
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To: Mike Winn who wrote (1657)11/18/1997 12:04:00 AM
From: Loren  Read Replies (1) of 60323
 
Mike -

First, the width of a Bollinger band is based on the volatility (variability) of the average price at that time. Note that earlier in the chart the price had jumped down suddenly. Note that the bands got a lot wider apart at that time. The reason the bands are moving together now is that the price of SNDK has become somewhat less volatile lately. That in itself is neither bullish nor bearish... but I like it, because it shows the stock is better behaved, and therefore probably more predictable with TA.

Normally, the moving average will run back and forth within the band. When the average is inside the band but close to the lower Bollinger limit, the chances are good that the price will go up. When the average is inside the band but closer to the UPPER limit, the chances are better that the price will go down.

However, if the average line breaks through the lower band going down, that is bad to me. It tells me that the stock is no longer behaving normally from a statistical point of view. If the average line breaks through the upper band going up, it also tells me that something NEW/DIFFERENT is going on with the stock... it is a bullish signal.

This may not be the way all folks think about Bollinger bands, but I think this way primarily because I've been well trained in SPC (Statistical Process Control) techniques (I used to be Quality Manager at one of my company's plants). Bollinger bands and SPC are very similar in scope and interpretation... it's all about 'normal' vs. 'special-cause' variability.

Hope this helps...

Loren
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