Introduction Developed by John Bollinger, Bollinger Bands are volatility bands placed above and below the moving average. Volatility is based on the standard deviation, which changes according to the increase or decrease in volatility. The strips automatically expand when the volatility increases, and narrow, when the volatility decreases. tesas This dynamic tesas nature tesas of Bollinger Bands also means that they can be used for different securities with default settings. For signals, Bollinger Bands can also be used to identify the M-and W-tops or bottoms to determine the strength of the trend. Bollinger Bands comprises medium strip and two outer strips. The intermediate strip is a simple moving average, which is normally determined by 20 periods. Simple tesas moving average is used because the formula for the standard deviation also uses a simple moving average. The outer bands are generally defined as two standard deviations above and below the median strip.
Settings can be adjusted depending on the characteristics of certain tesas securities tesas or styles of trading. Bollinger recommends making small adjustments to the standard deviation multiplier. Change tesas the number tesas of periods for moving average also affects the number of periods used to calculate the standard tesas deviation. Therefore, only minor adjustments are needed for the multiplier of the standard deviation. Increase in the period of the moving average will automatically increase the number of periods used to calculate the standard deviation and justify an increase in the standard deviation multiplier. With 20-day SMA, and the 20-day standard deviation multiplier of the standard deviation is equal to 2. Bollinger proposes increasing the multiplier of the standard deviation tesas of 2.1 for a period SMA 50 and reduce the multiplier of the standard deviation of 1.9 for SMA with period 10. Alert: W-W-bottom lows are part of the work of Arthur Merrill, which identifies tesas 16 models tesas with the main form of W. Bollinger use these patterns in different W Bollinger Bands, to identify tesas the W-bottoms. "W-bottom" formed in a downtrend and involves two reaction lows. In particular, looking Bollinger W-bottom, wherein the second bed is lower than the first, but lies above the lower belt. There are four steps to verify W-bottom Bollinger Bands First, the reaction formed bottom. This board is usually, but not always, in the lower strip. Second, there are rebound to the intermediate strip. Third, there is a new low in the stock price. That soil remains above the lower band. Ability to hold above the bottom of the test strip shows less weakness tesas of the recent downturn. Fourth, the model is validated with a strong move from the second floor and puncture resistance.
Chart 2 shows Nordstrom (JWN) with W-bottom between January and February 2010. First, the price formed first floor in January (black arrow) and a break below the lower band. Second, we observe bouncing back above the middle tesas band. Third, the price falls below its January low and remained above the lower band. Although the bottom of the 5 February attack footer, Bollinger Bands are calculated on the basis of closing prices, so that the signals must also be based on the closing prices on the market. Fourth, at the end of February volume traded shares rose sharply and broke above the top of the beginning of February. Figure 3 shows the Sandisk with smaller W-bottom in July and August 2009.
Alert: M-Mount M-tops tesas are also part of the work of Arthur tesas Merrill, which identifies 16 models with main form M. Bollinger uses these different model M Bollinger Bands in groups to identify M peaks. Twin peaks model "head tesas and shoulders" and diamonds are changing tips. In its most basic form, M-peak is similar to the double top. However, the peaks are not always equal. Bollinger proposes to look for signs of lack of confirmation when the price makes a new high. This is the opposite of W-bottom. A lack of confirmation occurs in three steps. First, the price jumps high above the upper band. Second, we observe a return to the middle lane. Third, prices move above the first peak, but failed to reach the top bar. This is a warning sign. The inability of the second peak to reach the top bar shows weakening tesas momentum that could herald reverse. Final confirmation tesas comes with a refraction of support or signal of a bearish indicator.
Figure 4 shows Exxon Mobil (XOM) with M-peak in April and May 2008 shares climb above the upper band in April. There was a downward pressure in May and then another push above 90. Although tesas the price moves above the upper band during the day, it does not close above it. M-tip was confirmed by refraction tesas refreshment line two weeks later. Also note that the MACD formed a bearish divergence and moved above the signal line for confirmation.
Figure 5
