What would cause, and what is the indication of narrowing Bollanger
Bands?
TT,
First, I am by no means an expert. The experts are the ones who develop and publish technical indicators that work. Sometimes I am lucky and interpret these indicators correctly. Sometimes..., well, best not to remember those times.
Specifically, Bollinger Bands (developed by John Bollinger) are bands positioned two standard deviations on either side of a 20-day moving average (one can play with the number of days in the moving average or the number of standard deviations if he or she has the software to do it). They tend to narrow, when the stock trades near its moving average for a period of time.
Some say that when the bands narrow, the stock is ready for a breakout. This does happen, but the primary purpose of the bands is to show whether prices are relatively too high or too low.
The bands are best used in conjunction with other indicators like the RSI. For example, if the RSI is in overbought conditions AND the stock is at the upper band, this is a strong indicator of a time to sell.
Hope this helps.
Sam |
