Bollinger Bands are curves drawn in and around the price structure on a chart that provide a relative definition of high and low. Likewise, if the average is shortened the number of standard deviations should be reduced; from 2 at 20 periods, to 1. The indicators used should not be directly related to one another. You are commenting using your Twitter account. Traditional Bollinger Bands are based upon a simple moving average. For a comprehensive book on Bollinger Bands and technical analysis see http:
Dec 31, · Bollinger Bands can be used on most financial time series, including equities, indices, foreign exchange, commodities, futures, options and bonds. Bollinger Bands can be used on bars of any length, 5 minutes, one hour, daily, weekly, etc.
The Sensible Guide To Forex p. The red BB settings are 1, 20 , 1 standard deviation that same 20 period SMA, which is shown here in purple. However we combine the middle two areas and focus on three zones: Your success with DBBs will depend greatly on how you respond when price transitions between the three zones. As with any technical indicator, the key question is: As always, when an indicator sends a signal, we seek some kind of confirmation before trading.
Just like traders need confirming signals to avoid getting fooled by temporary, false breakouts beyond support or resistance, so too here we need ways to distinguish between false trend changes and real ones, between short-lived and sustained moves into different zones that could last long enough for a profitable trade.
You may simply apply the same criteria that you use to confirm breakouts beyond support or resistance for the given asset and time-frame. You may find from experience that you need to adjust those criteria to confirm moves between DBB zones. The balance that works for you will depend on both the volatility of the asset, your personal risk tolerance, and other risk and money management safeguards you already have in place that determine the damage you suffer from a given loss.
For extensive details on risk and money management, as well as examples of how we apply these tools in actual trades, see Chapters 5 and 7 of The Sensible Guide To Forex. In sum, DBBs help us decide when we should be trading a trend, a trading range, or refraining from trading. Tags of the bands are just that, tags not signals.
In trending markets price can, and does, walk up the upper Bollinger Band and down the lower Bollinger Band. Closes outside the Bollinger Bands are initially continuation signals, not reversal signals.
This has been the basis for many successful volatility breakout systems. The default parameters of 20 periods for the moving average and standard deviation calculations, and two standard deviations for the width of the bands are just that, defaults.
The average deployed as the middle Bollinger Band should not be the best one for crossovers. Rather, it should be descriptive of the intermediate-term trend.
For consistent price containment: If the average is lengthened the number of standard deviations needs to be increased; from 2 at 20 periods, to 2. Likewise, if the average is shortened the number of standard deviations should be reduced; from 2 at 20 periods, to 1. Traditional Bollinger Bands are based upon a simple moving average. This is because a simple average is used in the standard deviation calculation and we wish to be logically consistent.
Exponential Bollinger Bands eliminate sudden changes in the width of the bands caused by large price changes exiting the back of the calculation window. Exponential averages must be used for BOTH the middle band and in the calculation of standard deviation. Exponential Bollinger Bands eliminate sudden changes in the width of the bands caused by large price changes exiting the back of the calculation window.
Exponential averages must be used for BOTH the middle band and in the calculation of standard deviation. Make no statistical assumptions based on the use of the standard deviation calculation in the construction of the bands. The distribution of security prices is non-normal and the typical sample size in most deployments of Bollinger Bands is too small for statistical significance.
The position within the bands is calculated using an adaptation of the formula for Stochastics. BandWidth tells us how wide the Bollinger Bands are. The raw width is normalized using the middle band.
Using the default parameters BandWidth is four times the coefficient of variation. BandWidth has many uses. Its most popular use is to identify "The Squeeze", but is also useful in identifying trend changes Bollinger Bands can be used on most financial time series, including equities, indices, foreign exchange, commodities, futures, options and bonds.
Bollinger Bands can be used on bars of any length, 5 minutes, one hour, daily, weekly, etc.
BOLLINGER BANDS RULES
This is the hub for everything about Bollinger Bands. Educational videos and articles, the Bollinger Band Letter, Bollinger Band Tool Kits. John Bollinger's boo. 22 rules using the Bollinger Band One of the great joys of having invented an analytical technique such as Bollinger Bands is seeing what other people do with it. The following rules covering the use of Bollinger Bands were gleaned from the questions users have asked most often and our experience over 25 years of using the bands. Tags: bands, bollinger, Bollinger band, bollinger bands, john bollinger 22 rules, john bollinger has a set of 22 rules, rules Leave a Reply .