Stochastic, MACD, Bollinger Bands Plus Day And Swing Traders

Bollinger bands genius is a webpage for day and swing traders who want

to master the Bollinger bands trading like a pro.  This webpage also allows

financial market traders to gain a superior understanding of the Bollinger

bands; and to use the bands more accurately.  Become a Bollinger bands genius.

Introduction

Developed by John Bollinger, Bollinger bands are technical indicators that

expand when market volatility surges, but contract when volatility evaporates.

A trading software uses the default settings of (20, 2).

Bollinger bands components

There are three bands:

1/ the upper band is a positive two standard deviation

of a particular moving average.

2/ the lower band is a negative two standard deviation of the equivalent

moving average,

3/ the middle band is indistinguishable to the moving average itself.

For example, the Bollinger (20, 2) is centered on the moving 20 (middle band).

Surely, the upper band is the positive two standard deviation of the corresponding

moving average, but the negative two standard deviation is the lower band.

View this chart

Image = Yahoo stock on the

daily chart exhibiting the

default Bollinger bands (20,2)

Bollinger bands in a balanced market

During a balanced market (consolidation) when the volatility is regularly weak,

the Bollinger bands contract and undulate along the price. Contrary to a static

horizontal channel, Bollinger bands are dynamic.

View the chart

Image = Ebay Inc stock on the

weekly chart exhibiting compact

Bollinger bands during a consolidation.

 

In a highly quiet market such as the Asian FX market (without an important

economic news), the Bollinger bands contract and seem squeezed. This event

often takes place before an extra rush in volatility. Really, one can use the

Bollinger bands to gauge the volatility in the financial markets.

Bollinger bands at the spring of a brand-new trend

A the early stage of a new trend, the Bollinger bands expand and open.

That change may be ephemeral if neither a bullish or a bearish momentum

follows suits.

Breakout trading and Bollinger bands

A breakout is a price structural change from a balanced phase to a trending

phase. Indeed, a trending financial market is an imbalanced market.

For example, a bearish bias reflects an imbalance between the bullish force

and bearish. In this instance, the bearish momentum is exceedingly greater

than bullish rallies. However, in a bullish trend, dynamic bullish markets forces

surpass contra-trend mini cycles.

a/ Bollinger bands uptrend breakout

At the origin, the lower band extends to the south

(a common misleading pattern), before the upper band opens. Once the upper

band opens, the lower band produces a perfect ninety-degree turn.


View this chart

Image = Avago Technologies Limited

on the daily chart depicting the lower band

that opens first to allow the price to drop

down to the orange spot before the uptrend

begins with vengeance.  Notice that the price

forms a double bottom chart pattern.  Many

traders will wrongly think that a downtrend is

underway as the lower band opens first.

the horizontal price structure (a misleading signal);

then the lower band cracks at the very time just when the upper

band began a magnificent ninety-degree rotation.


View this chart

Image = Applied Materials Inc (AMAT) stock on the 

four-hour chart  depicting the upper band

that opens first to allow the price to rise

to the green spot before the downtrend

begins with vengeance.  Notice that the price

forms a double top chart pattern.  Many

traders will wrongly think that a bullish trend is

underway as the upper band opens first.

Author: George Beaulieu, founder of stochastic-macd,

dayprotraders and 24elliottwaves websites. 

Warning

These events do not occur in the same mode as described shortly. However,

they are frequent. Moreover, they do not replay themselves like a

pre-recorded video.

Rising Bollinger bands

Bollinger bands rise in accord with the price once the trend is making progress

particularly during the third Elliott wave.  Both outer bands and the center band

stay parallel throughout the bullish progression.

Generally, this occurrence is impressive. Nevertheless, one should always focus

on the higher lows and highs.

Notably, whenever the bullish momentum is steadfast, the price will soar and

linger above the central band.

Besides, as the asset turns somehow overbought, the price will decisively pierce

the impermeable middle band before finding refuge on or near the inferior band.

Warning

The retest of the lower band does not always signal the conclusion of the bullish

momentum. The trend may resume one more time before

a substantial bearish divergence is in place.

Negative-slope Bollinger bands

Common characteristics are

1/ three bands are declining

2/ three bands stay parallel

3/ price is displaying lower lows and highs beneath the center line as the bearish

momentum advances.

4/ price finally pierce the impermeable middle band before ricocheting on the edge

of the upper band.

This occurrence is striking at the end of the third bearish wave when the fourth

Elliott wave is commencing. At this point, the asset becomes oversold, yet the

market sentiment remains very bearish.

View the chart

Image = Akamai Technologies Inc stock

(AKAM) on the weekly chart highlighting

parallel Bollinger bands in both up and 

down trends.  Author = George Beaulieu

Other Bollinger bands settings

Financial market traders usually use the Bollinger bands

(20, 2). However, several day and swing traders also use the Bollinger 

bands' settings (30, 2), (50, 2), or even (100, 2).  They also use the

standard deviation three instead of two.

For more information about various effective Bollinger bands trading 

strategies and settings, please check out the following webpages:

1/ Bollinger bands (50, 2)

2/ Bollinger bands