Bill I am sitting here on a Saturday night., so here is my take on
bollinger bands. For those technicians., or others Bollinger bands were developed by John Bollinger. Bollinger bands are really a modification of trading bands developed by John Bollinger.
Normally trading bands are lines drawn at fixed intervals around a
moving average. Trading bands are called moving average envelopes. However there were problems in these trading bands.
First different trading situations require different widths., and second
different moving average lengths produce different trading bands.
John Bollinger out of California solved the problem by placing the
bands two standard deviations on either side of the moving average.
Because of this fact., Bollinger bands will vary in distance from the
average as a function of the stocks volatility.
John Bollinger interpretation is as follows for a general guideline:
1. Sharp moves tend to occur after the bands tighten to the average.,
the volatility lessens.
2. A move outside of the bands calls for a continuation of the trend.
3. Tops and bottoms made outside the bands., which are followed
by tops and bottoms made inside the bands., indicate a trend reversal.
4. A move originating at one band tends to go to the other band.
So volatility being a function of this indicator indicates that as bands
tighten volatility lessens., as bands expand volatility increases.
In some case you may have heard the phrase" Riding the Band"., well usually a breakout above the band will see price action ride the
band., which can be a function of volume.,
that is price movement riding the crest of the bollinger band.
So traders look for penetration of the bollinger band., riding the
band upward as well as downward., seeing volatility is a function of
price movement.
There are variations these being general interpretations. Bollinger
Bands have been a very effective tool especially on the higher priced
stocks., usually breakouts occurr with the stock gapping up., and
and expansion of the bands. Momentum., OBV., Schochastics as
well are useful indicators for trading parameters.
Another useful tool being Candlestick charting., somewhat more complicated but an interesting study in itself. Most technical analysis
is more predictable on the higher price stocks., it has worked very well., in predicting significant moves in Aber sometime back.
Sincerely
George J. Tromp |
