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Bollinger Band

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Bollinger Band is developed by John Bollinger. You can find all the details in his book "Bollinger on Bollinger Bands". The technique which is used is based on 3 curves open-high-low-close(OHLC)  bar charts. The middle curve is simple arithmetic floating average of the daily final index price, chosen by the trader. The bottom and upper curves are the standard diversion below and upper floating middle line. As you know, the standard diversion is the metric of volatility, the curves are self-adjusted as such expanding during volatile markets and shrink during calm periods. Bollinger recommends 10 days short terms trading, 20 days - medium term, and 50 for longer term trading.Higher values is basically used by sharing and it is more likely used by stock traders for shorter periods.

Bollinger Curves require typing in 2 values. So, the trader must fill in the count of the days in the index of the floating middle and the count of the standard diversion, which have to be shown below and up of the floating curve. Most likely, up to 90%-95% of the daily final prices are within of 3 standard diversion from the middle line. For the second parameter it is mostly seen values between 1,5 and 2,5 standard diversion. The curves of Bollinger may vary its distance between based on the volatility of the prices.When there is high price movements, or it is said high volatility, the curves increase the distance and this way they allow more space and easy movements between them. However, when the market is calm, the volatility is low, then the curves decrease the distance and shows slower market movements.

Bollinger Band is indicator and it does not trade automatically or produce signals. In other words, it is not expert advisor and it does not open and close trades. They must be used with other indicators and basically it could be used together with relative strength. This is for the simple matter, if the price reaches one of the curves this could mean that the current trend will continue or the trend is going to change its way. Bollinger Band alone does not give enough information for the trader to buy or sell. Another indicator which you may use along Bollinger Band is MACD and RSI.

We would like to give you some indications which you may look for while using Bollinger Band. Here are they:

  • When the price goes beyond the frame of the curves most likely you may expect of the current trend  to continue on its way
  • Abrupt changes in the prices are more likely whenever the tunnel of the Bollinger Band gets narrow with the decrease of the volatility
  • When there are movements near one of the curves it is likely to move and reach the other curve and this is helpful sign when we have some stake prices
  • Tops and bottoms out of the curves and then following the bottoms and tops on the curves is a sign that the trend  is going to change its way.

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