Bollinger Bands

Bollinger Bands Introduction:
Bollinger Bands are a technical trading tool created by John Bollinger in the early 1980s. They arose from the need for adaptive trading bands and the observation that volatility was dynamic, not static as was widely believed at the time.

The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition prices are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions.

Bollinger Bands consist of a set of three curves drawn in relation to securities prices. The middle band is a measure of the intermediate-term trend, usually a simple moving average, that serves as the base for the upper band and lower band. The interval between the upper and lower bands and the middle band is determined by volatility, typically the standard deviation of the same data that were used for the average. The default parameters, 20 periods and two standard deviations, may be adjusted to suit your purposes.

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The 15 basic Bollinger Band rules

The 15 basic rules for using Bollinger Bands.One of the great joys of having invented an analytical technique such as BollingerBands is seeing what other people do with it. While there are many ways to use Bollinger Bands, following are a few rules that serve as a good beginning point.

1. Bollinger Bands provide a relative definition of high and low.
2. That relative definition can be used to compare price action and indicatorto arrive at rigorous buy and sell decisions.
3. Appropriate indicators can be derived from momentum, volume, sentiment, openinterest, inter-market data, etc.
4. Volatility and trend have already been deployed in the construction of BollingerBands, so their use for confirmation of price action is not recommended.
5. The indicators used for confirmation should not be directly related to one another.Two indicators from the same category do not increase confirmation. Avoid colinearity.
6. Bollinger Bands can also be used to clarify pure price patterns such as M-type;tops and W-type bottoms, momentum shifts, etc.
7. Price can, and does, walk up the upper Bollinger Band and down the lower BollingerBand.
8. Closes outside the Bollinger Bands can be continuation signals, not reversalsignals--as is demonstrated by the use of Bollinger Bands in some very successfulvolatility-breakout systems.
9. The default parameters of 20 periods for the moving average and standarddeviation calculations, and two standard deviations for the bandwidth are justthat, defaults. The actual parameters needed for any given market/task may bedifferent.
10. The average deployed should not be the best one for crossovers. Rather, itshould be descriptive of the intermediate-term trend.
11. If the average is lengthened the number of standard deviations needs to beincreased simultaneously; from 2 at 20 periods, to 2.1 at 50 periods. Likewise,if the average is shortened the number of standard deviations should be reduced;from 2 at 20 periods, to 1.9 at 10 periods.
12. Bollinger Bands are based upon a simple moving average. This is because asimple moving average is used in the standard deviation calculation and we wishto be logically consistent.
13. Be careful about making statistical assumptions based on the use of the standarddeviation calculation in the construction of the bands. The sample size in mostdeployments of Bollinger Bands is too small for statistical significance and thedistributions involved are rarely normal.
14. Indicators can be normalized with %b, eliminating fixed thresholds in the process.
15. Finally, tags of the bands are just that, tags not signals. A tag of the upperBollinger Band is NOT in-and-of-itself a sell signal. A tag of the lower BollingerBand is NOT in-and-of-itself a buy signal.

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A comprehensive guide to using Bollinger Bands
from the man who created them!

Over the past two decades, thousands of veteran traders have come to view Bollinger Bands as the most representative-and reliable-tool for assessing expected price action. Now, in his long-anticipated first book Bollinger on Bollinger Bands, John Bollinger himself explains how to use this extraordinary technique to effectively compare price and indicator movements-for sound, sensible, and profitable trading decisions.


John Bollinger developed Bollinger Bands in the early '80s. Since their introduction, they have become one of the most widely used technical indicators by investors and technical analysts. Bollinger Bands are currently available on most of the stock market software and Internet charts in use and for good reason-they work! While many investors have heard of Bollinger Bands and use them, prior to this book there was no literature explaining how to use them properly.

This book is John Bollinger's answer to numerous requests for guidance.

How will Bollinger Bands help you make better investments?

They provide a relative definition of whether the current price is high or low. This book explains how that relative definition can be used to compare price action and indicator action to arrive at rigorous buy and sell decisions.

"Bollinger on Bollinger Bands" explains in simple language how to use Bollinger Bands and how to use a wide array of technical tools and indicators to make rational investing choices. Starting with the basics and building to the complex, the book teaches the technical analysis process. Learn which indicators to use and how to read charts. The book takes multiple investment styles and timeframes into consideration so there is valuable information for the day trader as well as long-term investor.

"Bollinger on Bollinger Bands" provides trading systems that you can employ and integrate into your investment style. It also comes with a reference guide for easy recognition of trading patterns. The layout and content of the book provide hands-on guidance on how to use Bollinger Bands effectively to improve investing results.

If you use Bollinger Bands already and or if you want to learn how, "Bollinger on Bollinger Bands" is a must read.

The basics through advanced topics
Three trading systems
How to set up optimal charts
Indicators to use for confirmation
Easy pattern recognition techniques
Normalization of indicators for easier interpretation
Multiple investment styles and timeframes
For day-traders and long-term investors
Free reference guide with trading patterns

Further Readings Visit The Source.
Source ~ See Bollinger Bands in action at > www.BollingerOnBollingerBands.com.