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Technology Stocks : 3DFX
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To: Daniel P. Dwyer who wrote (8792)11/4/1998 6:48:00 PM
From: Sun Tzu  Read Replies (1) of 16960
 
Bollinger bands are moving averages + and - a set number of the standard deviation (usually 2) for the stock for the period of the moving average. The idea is to have an envelope that acts as volatility gauge on the underlying market's price excursions. The bands expand in periods of volatility and narrow when things are calm. Many theories come into play here. One was the mid point crossing that I mentioned. Another states that when the bands are narrowed too much, you can expect them widen suddenly. To be able to judge the volatility is of course very important to option traders. Like most technical indicators, you can modify the formula to be a better indicator (for you or for the stock). Page 38 of Futures magazine, futuresmag.com has a good article on Bollinger bands. You might need to brush up on you stats just a little before reading it though.

BTW, a lot of people (those who believe in TA as well as those who don't) think that TA just means recognizing a support or resistance level or following MACD. Real technical analysts spend years developing their indicators and then constantly modify them to be up to date with the changing market. If TA was as simple as some people think it is, big brokerage houses would not be paying huge sums of money for people like Louis Yamadda and Ralph Accompoura.

Sun Tzu
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