BREAKING DOWN 'Bollinger Band®'

Using Bollinger Bands to Gauge Trends

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John Bollinger's boo This is the hub for everything about Bollinger Bands. Educational videos and articles, the Bollinger Band Letter, Bollinger Band Tool Kits. Bollinger Bands® are a highly popular technique. Many traders believe the closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower.

What is a 'Bollinger Band®'

The first is the top after a divergence. You can see how the trend became weaker and then eventually failed to reach the outer Band before reversing. I marked the second spike with an arrow which was a trend continuation signal as price failed to break higher during the downtrend. The strong spike that was followed by a fast rejection showed that bulls lacked power. If you want to learn how to trade profitably with a step by step trading approach and a powerful trading system, take a look at our premium trading courses.

Man your articls on indicators are always beyond imagination and expectations. You are too good let me endorse your work. I have read and agree to the privacy policy. Let me walk you through the points 1 to 5: There are two types of tops that you need to know about: Bollinger recommends making small incremental adjustments to the standard deviation multiplier. Changing the number of periods for the moving average also affects the number of periods used to calculate the standard deviation.

Therefore, only small adjustments are required for the standard deviation multiplier. An increase in the moving average period would automatically increase the number of periods used to calculate the standard deviation and would also warrant an increase in the standard deviation multiplier. Bollinger suggests increasing the standard deviation multiplier to 2. W-Bottoms were part of Arthur Merrill's work that identified 16 patterns with a basic W shape.

In particular, Bollinger looks for W-Bottoms where the second low is lower than the first but holds above the lower band. There are four steps to confirm a W-Bottom with Bollinger Bands.

First, a reaction low forms. This low is usually, but not always, below the lower band. Second, there is a bounce towards the middle band. Third, there is a new price low in the security. This low holds above the lower band. The ability to hold above the lower band on the test shows less weakness on the last decline. Fourth, the pattern is confirmed with a strong move off the second low and a resistance break. First, the stock formed a reaction low in January black arrow and broke below the lower band.

Second, there was a bounce back above the middle band. Third, the stock moved below its January low and held above the lower band. Even though the 5-Feb spike low broke the lower band, Bollinger Bands are calculated using closing prices so signals should also be based on closing prices.

Fourth, the stock surged with expanding volume in late February and broke above the early February high. M-Tops were also part of Arthur Merrill's work that identified 16 patterns with a basic M shape. According to Bollinger, tops are usually more complicated and drawn out than bottoms. Double tops, head-and-shoulders patterns, and diamonds represent evolving tops. In its most basic form, an M-Top is similar to a double top. However, the reaction highs are not always equal.

The first high can be higher or lower than the second high. Bollinger suggests looking for signs of non-confirmation when a security is making new highs. This is basically the opposite of the W-Bottom. A non-confirmation occurs with three steps. First, a security creates a reaction high above the upper band.

Second, there is a pullback towards the middle band. Third, prices move above the prior high but fail to reach the upper band. This is a warning sign. The inability of the second reaction high to reach the upper band shows waning momentum, which can foreshadow a trend reversal.

Final confirmation comes with a support break or bearish indicator signal. Using the SPY as a surrogate so we can calculate volume indicators, we find that both day Intraday Intensity and Accumulation Distribution are quite positive, suggesting that if a breakout were to occur here it would be to the upside.

That stands in marked contrast to our more cautious approach to the market as a whole, so we will be monitoring this set-up quite carefully Bollinger On Bollinger Bands. John Bollinger developed Bollinger Bands in the early s and since their introduction 30 years ago they have become one of the most widely used technical indicators worldwide.

Learn how to use Bollinger Bands from the man who developed them. John Bollinger teaches you the basics of Bollinger Bands so you can use the effectively. Bollinger on Bollinger Bands:

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I am getting a little older now and hopefully a little wiser and that kind of money that fast, I have learned is almost impossible for me to grasp.

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