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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: