Scribd Logo
Upload

Welcome to Scribd!

  • 1K views

    Bollinger Bands

    Uploaded by

    spmltechnologies
    Bollinger Bands are volatility bands placed above and below a moving average. They are calculated as the moving average plus or minus a certain number of standard deviations. John Bollinger pioneered their use in trading to measure volatility and identify periods of high and low volatility. When the bands converge it signals low volatility before a potential breakout. The bands can also be used to identify support and resistance levels and trading patterns like "W" and "M" formations. Bollinger Bands can be applied to other indicators to measure their volatility.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd

    Bollinger Bands

    Uploaded by

    spmltechnologies
    1K views27 pages
    Bollinger Bands are volatility bands placed above and below a moving average. They are calculated as the moving average plus or minus a certain number of standard deviations. John Bollinger pioneered their use in trading to measure volatility and identify periods of high and low volatility. When the bands converge it signals low volatility before a potential breakout. The bands can also be used to identify support and resistance levels and trading patterns like "W" and "M" formations. Bollinger Bands can be applied to other indicators to measure their volatility.

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Bollinger Bands are volatility bands placed above and below a moving average. They are calculated as the moving average plus or minus a certain number of standard deviations. John Bollinger pioneered their use in trading to measure volatility and identify periods of high and low volatility. When the bands converge it signals low volatility before a potential breakout. The bands can also be used to identify support and resistance levels and trading patterns like "W" and "M" formations. Bollinger Bands can be applied to other indicators to measure their volatility.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    1K views27 pages

    Bollinger Bands

    Uploaded by

    spmltechnologies
    Bollinger Bands are volatility bands placed above and below a moving average. They are calculated as the moving average plus or minus a certain number of standard deviations. John Bollinger pioneered their use in trading to measure volatility and identify periods of high and low volatility. When the bands converge it signals low volatility before a potential breakout. The bands can also be used to identify support and resistance levels and trading patterns like "W" and "M" formations. Bollinger Bands can be applied to other indicators to measure their volatility.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 27
    At a glance
    Powered by AI
    The document discusses the history and construction of Bollinger Bands as well as how they can be used and applied to other indicators.

    Some envelope types discussed include trading bands, envelopes, channels, projection bands, standard error bands, and price channels.

    Bollinger Bands are constructed using a moving average, upper band that is 2 standard deviations above the moving average, and lower band that is 2 standard deviations below the moving average.

    Bollinger Bands

    Metastock User Group 11/5/02


    Leland Brode elbrode@yahoo.com

    Bollinger Bands - Outline


    History Construction of Bollinger Bands Using Bollinger Bands Bandwidth and %b Building New Indicators with Bollinger Bands

    History of Envelopes

    Twin-Line Chart by LeDoux 1960


    Upper band line along monthly highs Lower band line along monthly lows Buy when lower band exeeds upper band

    Ten Day Moving Average Rule by Keltnur 1960


    Establish concept of typical price (hi + lo + cl / 3) Buy and Sell lines based on Moving Avg of above

    Types of Envelopes

    Trading Bands

    Lines above and below a central tendency

    Envelopes

    Lines above and below by a %


    Parallel lines above and below prices

    Channels

    Envelope Examples Envelope


    - 2 Moving Averages, one shifted up, the other down - Sell when reach upper envelope, buy when reach lower

    WAL MART STORES (55.0000, 57.0000, 54.6800, 56.4700, +0.40000)

    Envelope

    65

    60

    55

    50

    45

    10000 x1000 Novem ber 2002 February April May June July Augus t September

    Novem be

    Envelope Examples Price Channel


    - Upper line is Highest High for n bars, Lowest Low for n bars - Indicate Support and Resistance lines

    MART STORES (55.0000, 57.0000, 54.6800, 56.4700, +0.40000), Price Channel (58.0250), Price Channel (48.5500) 65 Price Channel 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 10000 x1000 Novem ber 2002 February April May June July Augus t September Novem ber

    Envelope Examples Projection Bands


    - Project Price over n bars forward ( completely contains prices ) - Sell when reach upper band, buy when reach lower

    WMT, Proj Bands , Proj Bands

    Projection Bands 20 period

    65

    60

    55

    50

    45

    40

    10000 x1000 Novem ber 2002 February April May June July Augus t September Novem ber

    Envelope Examples Projections Bands

    WMT, Proj Bands , Proj Bands

    Projection Bands 30 period

    65

    60

    55

    50

    45

    40

    10000 x1000 Novem ber 2002 February April May June July Augus t September Novem ber

    Envelope Examples Standard Error Bands


    - Bands are Standard Error above and below linear regression - Measures volatility, use with r-squared indicator

    WAL MART STORES (55.0000, 57.0000, 54.6800, 56.4700, +0.40000)

    Standard Error Bands

    65

    60

    55

    50

    45

    40 10000 x1000 Novem ber 2002 February April May June July Augus t September Novem ber

    Bollinger Bands

    John Bollinger Financial News Network, Market Technician in 1980s Pioneered use of Standard Deviation for construction of price envelope in 1983 Bollinger Bands are:

    20 bar moving average, Upper Band is 2 Standard Deviations above Mov Ave, Lower Band is 2 Standard Deviations below Mov Ave

    Contains 89% of all prices Shows Volatilitiy

    Envelope Examples Bollinger Bands

    WAL MART STORES (53.59000, 54.79000, 52.68000, 54.55000, +1.00000)

    65

    60

    55

    50

    45

    15000 10000
    x1000

    5000

    September Novem ber

    2002

    February

    April

    May

    June

    July

    August September

    Novem ber

    Using Bollinger Bands

    The Squeeze

    Low volatility followed by break-out, higher volatility Lower volatility marks end of trend, Opposite Band turns in at end of trend
    Indicates strong trend pullbacks to Moving Average tag of upper, followed by tag of lower band, and visa versa If cross Mov Ave, then will continue to Band

    Walk the Bands


    Sideways trend

    Using Bollinger Bands The Squeeze, Walking the Bands

    IBM (78.9000, 80.5000, 78.3200, 80.4000, +1.46000)

    115 110 105 100

    The Squeeze - narrow bands followed by breakout in mid-August

    95 90 85 80 75 70 65 60 55

    Walking the band

    50

    25

    8 April

    15 22 29 6 13 20 28 10 17 24 1 May June July

    20000 x1000 10000 15 22 29 5 12 19 26 3 16 23 30 7 14 21 August September October

    Using Bollinger Bands Patterns

    Relative W, M pattern

    Becomes - relative

    Buy Band Tag

    Using Bollinger Bands Patterns

    Relative W, M pattern

    Becomes - relative
    Band Tag Sell

    Using Bollinger Bands Use with other indicators


    Confirm with other indicators Bollinger Bands are a price indicator Use Volume indicators

    Volume only:

    On Balance Volume Volume Trend Demand Index Money Flow PriceVolume Trend Accum Distribution Intraday Intensity Chaiken AD Oscillator Volume Weighted MACD ?

    Volume & Price:


    Bollinger Bands with Money Flow Index (MFI)


    Walm art (54.4100, 54.9300, 53.3000, 53.4200, -0.98000)

    65

    60

    55

    50

    Declining MFI confirms downtrend

    45

    MFI

    50

    10000
    x10

    Novem ber Decem ber 2002

    February March

    April

    May

    June

    July

    Using Bollinger Bands Bandwidth, %b

    Bandwidth

    Measures distance between upper and lower band Greater distance -> greater volatility, strong trend Use Bandwith to find The Squeeze Lesser distance -> lesser volatility, sideways
    BBandTop(CLOSE, 20, S, 2) BBandBot(CLOSE, 20, S, 2) Measures position of price relative to Bottom and Top bands Range 0 to 1: 0 indicates bottom band tag, 1 indicates top band tag, .5 indicates in the middle (CLOSE BBandBot(CLOSE, 20, S, 2)) / Fml(BandWidth)

    Bandwidth formula

    %b

    %b formula

    Using Bollinger Bands Bandwidth, %b


    IBM (78.90000, 80.50000, 78.32000, 80.40000, +1.46000) 135 130 125 120 115 110 105 100 95 90 85 80 75 70 65 60 55 50 45

    BandWidth

    30 20 10

    %b

    1.0 0.5 0.0 30000


    x1000 10000

    November

    December 2002

    Februar y

    Mar ch

    Apr il

    May

    June

    July

    August

    September October

    November

    Bollinger Bands Applied to indicators

    Apply Bollinger Bands to MFI, RSI, etc

    Shows Range of Indicator (Standard Deviation) Shows Relative Highs and Lows of indicator instead of Fixed Highs and Lows (80/20 Overbought/Oversold)

    %b of Indicator

    Bollinger Bands Applied to Indicators


    IBM (78.90000, 80.50000, 78.32000, 80.40000, +1.46000) 135 130 125 120 115 110 105 100 95 90 85 80 75 70 65 60 55 50 45 80 70 60 50 40 30 20 80 70 60 50 40 30 20 B Bands on MFI B Bands on MFI 30000
    x1000 10000

    MFI

    B Bands on MFI

    September

    November December2002

    Februar y Mar ch

    Apr il

    May

    June

    July

    August

    September

    November

    Bollinger Bands - %b Applied to Indicators


    APPLIE MATERIAL (14.90000, 15.95000, 14.77000, 15.72000, +0.69000) D 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9

    RSI

    60 50 40 30 1.0

    %bRSI
    0.5 0.0 50000

    x1000

    Februar y

    Mar ch

    Apr il

    May

    June

    July

    August

    September

    October

    November

    Bollinger Band MetasStock Formulas Bollinger Band Components BandWidth1: BBandTop(CLOSE, 20, S, 2) - BBandBot(CLOSE, 20, S, 2) %b: (CLOSE - BBandBot(CLOSE, 20, S, 2)) / Fml( "BandWidth1")

    Bollinger Bands applied to Indicators


    Money Flow Index BandWidthMFI: BBandTop(MFI(14), 20, S, 2) BBandBot(MFI(14), 20, S, 2) %bMFI: (MFI(17) BBandBot(MFI(17), 20, S, 2)) / Fml(BandWidthMFI) Accum/Distribution BandWidthAD: BBandTop(AD(), 17, S, 2) BBandBot(AD(), 17, S, 2) %bAD: (AD() BBandBot(AD(), 17, S, 2)) / Fml(BandWidthAD)

    Chaiken AccumDistr Oscillator BandWidthADO: BBandTop(CO(), 20, S, 2) BBandBot(CO(), 20, S, 2) %bADO: (ADO() BBandBot(ADO(), 20, S, 2)) / Fml(BandWidthADO)

    Intraday Momentum Index BandWidthIMI: BBandTop(IMI(17), 17, S, 2) BBandBot(IMI(17), 17, S, 2) %bIMI: (IMI(17) BBandBot(IMI(17), 17, S, 2)) / Fml(BandWidthIMI)
    Volume BandWidthVol: BBandTop(VOLUME, 27, S, 2) BBandBot(VOLUME, 27, S, 2) %bVol: (VOLUME BBandBot(VOLUME, 27, S, 2)) / Fml(BandWidthVol) RSI BandWidthRSI: BBandTop(RSI(CLOSE, 17), 17, S, 2) BBandBot(RSI(CLOSE, 17), S, 2) %bRSI: (RSI(CLOSE,17) BBandBot(RSI, 17) 17, S, 2)) / Fml(BandWidthRSI)

    Generic BandWidth and %b


    BandWidth_20: BBandTop(p, 20, S, 2) BBandBot(p, 20, S, 2) %b_20: (p BBandBot(p, 20, S, 2)) / Fml(BandWidth_20)

    Bollinger Bands - Summary


    Provide Envelope for most of price action Shows Volatility The Squeeze sharp moves occur after Squeeze Walking the Bands move outside band, continue trend M and W Patterns convert to Relative M, W, trend change A move that originates at one band goes to the other band A cross of Moving Avg continues to next band Confirm with other indicators (Volume indicators) Apply Bollinger Bands to other indicators

    Bollinger Bands Bibliography


    Bollinger on Bollinger Bands, John Bollinger Technical Analysis of the Financial Markets, John Murphy Getting Started in Technical Analysis, Jack Schwager Technical Analysis for the Trading Professional, Constance Brown Technical Analysis from A to Z, Steven Achelis

    You might also like