Bollinger Bands

[darwisy]

Bollinger Bands is a versatile tool combining moving averages and standard deviations and is one of the most popular technical analysis tools available for traders. There are three components to the Bollinger Band indicator:

1. Moving Average: By default, a 20-period simple moving average is used.
2. Upper Band: The upper band is usually 2 standard deviations (calculated from 20-periods of closing data) above the moving average.
3. Lower Band: The lower band is usually 2 standard deviations below the moving average.

Bollinger Bands (in blue) are shown below in the chart of the E-mini S&P 500 Futures contract:

There are three main methodologies for using Bollinger Bands, discussed in the following pages:

1. Playing the Bands
2. Bollinger Band Breakouts
3. Option Volatility Strategies

 

[haudli]

ramai gak yg gune BB ni utk tentukan support resistent,,kalau sesape ade setting cun bolehla kongsikan disini..

ape jua trading styles kite,pastikan bersesuaian dengan modal ..money management is a must..

 

[darwisy]

Playing the bands is based on the premise that the vast majority of all closing prices should be between the Bollinger Bands. That stated, then a stock's price going outside the Bollinger Bands, which occurs very rarely, should not last and should "revert back to the mean", which generally means the 20-period simple moving average. A version of this strategy is discussed in the book Trade Like a Hedge Fund by James Altucher.

Buy Signal

In the example shown in the chart below of the E-mini S&P 500 Future, a trader buys or buys to cover when the price has fallen below the lower Bollinger Band.

Sell Signal

The sell or buy to cover exit is initiated when the stock, future, or currency price pierces outside the upper Bollinger Band.

These buy and sell signals are graphically represented in the chart of the E-mini S&P 500 Futures contract shown below:

More Conservative Playing the Bands

Rather than buying or selling exactly when the price hits the Bollinger Band, the more aggressive approach, a trader could wait and see if the price moves above or below the Bollinger Band and when the price closes back inside the Bollinger Band, then the trigger to buy or sell short occurs. This helps to reduce losses when prices breakout of the Bollinger Bands for a while. However, many profitable opportunities would be lost. To illustrate, the chart of the E-mini S&P 500 Future above shows many missed opportunities. However, in the chart on the next page, the more conservative approach would have prevented many painful losses.

Also, some traders exit their long or short entries when price touches the 20-day moving average.

A different, and quite polar opposite way to use Bollinger Bands is described on the next post, Playing Bollinger Band Breakouts.

 

[nikcashworld]

tq tt...bb + macd...tak mengeciwakan....

 

[SiRentap]

tq tt...bb + macd...tak mengeciwakan....

konsisten ker profit? biasa you analisis dkt TF mane?

 

[nikcashworld]

kena faham...ada perkaitan antara dua ind. ni...tf xkisah...aku pakai tf1minute

 

[darwisy]

Basically the opposite of "Playing the Bands" and betting on reversion to the mean is playing Bollinger Band breakouts. Breakouts occur after a period of consolidation, when price closes outside of the Bollinger Bands. Other indicators such as support and resistance lines can prove beneficial when deciding whether or not to buy or sell in the direction of the breakout.

The chart below shows two such Bollinger Band breakouts:

Bollinger Band Breakout through Resistance Buy Signal

Price breaks above the upper Bollinger Band after a period of price consolidation. Other confirming indicators are suggested, such as resistance being broken in the chart above.

Bollinger Band Breakout through Support Sell Signal

Price breaks below the lower Bollinger Band. It is suggested that other confirming indicators be used, such as a support line being broken, such as in the example above of Wal-Mart stock breaking below support.

This strategy is discussed by the man who created Bollinger Bands, John Bollinger.

Bollinger Bands can also be used to determine the direction and the strength of the trend. The chart below of the E-mini S&P 500 Futures contract shows a strong upward trend:

Bollinger Band Showing a Strong Trend

The chart above of the E-mini S&P 500 shows that during a strong uptrend, prices tend to stay in the upper half of the Bollinger Band, where the 20-period moving average (Bollinger Band centerline) acts as support for the price trend.

The reverse would be true during a downtrend, where prices would be in the lower half of the Bollinger Band and the 20-period moving average would act as downward resistance.