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Strategies & Market Trends : Underexposed Technical Analysis
AQN 6.620+2.0%3:59 PM EST
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From: Underexposed3/17/2017 2:52:41 AM
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Bollinger Band Signals

I spent the last post on Bollinger Bands discussion how they are formed and that they were a measure of price volatility. Also that major price movements occurred at choke points (Bollie Squeeze) which of course are areas of low price volatility. But it was a guessing game as to which way the break would go... bull or bear.

1. Indication of a Bull/Bear breakout

Then I got the bright idea that I should pay closer attention as to the relationship between the price and the 20daySMA (the center line of the bands).

And it sort of paid off...



It seemed that the key was to have the price was above the 20 day SMA for bullish rise and below for a bearish fall. My batting average for success improved considerably but it was not perfect. As I said before, sometimes the charts lie and the opposite would happen....very frustrating when that happened {sigh}



you see that the price reversed after suggesting a fall below the the 20dayMA. So I had to be more careful for many years.... until I finally worked out my Trigger chart... but you are going to have to wait for that...getting ahead of myself here.

2. Indication of the end of a Bull/Bear run

There are three ways I use to estimate the end of a run

  • the curvature of the upper bollie on a bull run and lower bollie on a bear run .......This is not perfect but it gives you clues that the run is coming to a close. It does NOT mean that the stock is turning from bull to bear or bear to bull. It just means the current run is near ending. Here is an example of a bull and bear situation


See by April 4 the bollie curve looks topped out... this is probably the end of a bull run... if you are a swing player it would be time to get out of the pool and collect profits.



By April 14 you can see the lower bollie starting a curve... the slope of that lower bollie suddenly changed... If you were shorting... time to cover that short.

  • Double top/double bottom when within a bollie consolidation ... prediction of a major reversal.... this happens more often than you think...the result of acting on such an occurrence can be very profitable.Here are charts to demonstrate this....


This is not the best example but it does illustrate the point... see the fall then rise at the top of the bull upper band...the price rests on the shoulder then plunges.



this chart is much clearer and see how the price uses that line through the crotch of the W as a support before taking off for a nice bullish run?

  • Price shoots high over upper Bollie band or falls far below the lower Bollie band..... You see this happen especially in Pumped stocks... look at this common pattern
Here is a couple example of what I believe are stocks that were pumped (I hate pumpers... they prey on Newbies to stocks and the financially naive)



and another which was pumped twice



Do you see the pattern here???

1. Very low volumes in trades leading put to the pump point
2. The story is broadcast everywhere and pumpers flood the stock chat areas on the i'net. I used to participate on those website chat sites and I'd here them saying " this stock is going to be a 10 bagger", "I'm backing up the truck and loading it up while I can", " This stock is flying to the moon". {sickening when you see especially the young and naive falling for this garbage}

Now let us say you bought this stock months earlier and the stock rockets off... can you take advantage of this miracle that you stumbled on???

Yep you can.... When you see a stock rising high over the upper BB. See it for what it is... a selling opportunity RFN (right now).... it will fall back very quickly (2 days max)... if it is a real move and not a pump (the volume change is a big clue...ie high volumes leading up to this rocket) the price will still fall ... you can sell... then as it settles down, if you desire and see further profit... you can repurchase the stock at a much cheaper price... but I would NEVER hold on to the rocket.

I will devote a complete post on pumping and how to spot a pumper in the future

Here is a bearish incidence example (they are much rarer)



This is just the opposite of for a Bull run... if you are short and see this kinda drop... I would cover that short RFN

OK...we are almost finished with this post... I have one more important feature about Bollies to talk about and it is related to what we just talked about.... when a price is outside a bollie but not outrageously so...

How can I decide whether to keep the stock or not?

Good question....

Let us look at a typical stock chart



Here are a number of instances of prices exceeding a bollinger band.... Look closely... How long do they stay outside the bollie in question??? eventually they do re-enter the Bollie envelope, don't they?

Some re-enter the next day... but the maximum turns out to be 5 days outside... so what is important about that, you ask!!!

The way they reenter gives clues as to whether the run will be bearish or bullish... that is what is important.... to me anyway.

let's look at a bullish run with price outside the upper bollie... I am only going to show it before it reenters for now



So if the re-entry is on a positive slope... almost 100% there is more bullishness to come.

So if the re-entry is on a negative slope... almost 100% there will be a bear reversal to come.

So if the re-entry is on a neutral slope... well you don't know right then... it could go either way... you will just have to wait to see what happens for a couple of days

Here is an example chart to illustrate these situations



it is not always 100% and sometimes may be muddy... however in the face of no real information to go on other than this pattern.... it is not bad :)

Conclusion (are you tired of Bollinger Bands yet!!!???)

If you digested this, congratulations... it is a lot of material that you will never find in a TA publication.... but it works for me...time and time again.

We are finished with Bollies for now... take a look at your own charts that interest you.... see if my observations are not right... if you find a bad example please inform me so I I can see it and maybe change my views on whatever it is.

Time to go to bed

Good Trading.....

_____________________________________________________________________________________________________________________________________________

Disclaimer:

I am not a registered broker. I am retired and use Technical Analysis as the main tool in my investment decisions. Accept or reject my comments as you will, but do your own Due Diligence (DD) before making any decisions based on the information I provide.

Underexposed
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