Pathshala: BB

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Bollinger Bands</h2>
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<h3 class="sectionedit2" id="introduction">
Introduction</h3>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUeOS2ocXUuIezajTmeK2aIZNW2QIBJ1Lltr4GwD573b44L7VwrN-1m8Ls_5zaNjAxOEU3m8jtyN-g389O1m23iQsl3YEZDOY84KwhOlVh7ZfXN72vSnJ4fUMcwOSf8z1o0h8IRkXLZWw/s1600/John-Bollinger-On-Bollinger-Bands.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="300" data-original-width="460" height="130" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUeOS2ocXUuIezajTmeK2aIZNW2QIBJ1Lltr4GwD573b44L7VwrN-1m8Ls_5zaNjAxOEU3m8jtyN-g389O1m23iQsl3YEZDOY84KwhOlVh7ZfXN72vSnJ4fUMcwOSf8z1o0h8IRkXLZWw/s200/John-Bollinger-On-Bollinger-Bands.png" width="200" /></a><span style="font-family: "arial" , "helvetica" , sans-serif;">Developed by John Bollinger, Bollinger Bands® are volatility bands 
placed above and below a moving average. Volatility is based on the standard deviation,
 which changes as volatility increases and decreases. The bands 
automatically widen when volatility increases and narrow when volatility
 decreases. This dynamic nature of Bollinger Bands also means they can 
be used on different securities with the standard settings. For signals,
 Bollinger Bands can be used to identify M-Tops and W-Bottoms or to 
determine the strength of the trend. 
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<u>Note: Bollinger Bands® is a registered trademark of John Bollinger. </u></span><br />
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<h4 class="sectionedit3" id="sharpcharts_calculation" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">SharpCharts Calculation</span></h4>
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<pre style="font-family: monospace;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"><b>  * Middle Band = 20-day simple moving average (SMA)
  * Upper Band = 20-day SMA + (20-day standard deviation of price x 2) 
  * Lower Band = 20-day SMA - (20-day standard deviation of price x 2)</b></span>
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<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibgfhYbDUo7zEMk2eaZ_Ti6h2Cg3YGkZA8NSDqMZDjB138G6_b-pioIL9ix5BOkE9TPvPGRYNtVMQO_0l7pF6mad5nxtWKpx4z-FkxITACRG4dwtSLtDOFd_kETRalEg7AXnXQ2eBw1RY/s1600/Bollinger+Bands+Sheet.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="454" data-original-width="426" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibgfhYbDUo7zEMk2eaZ_Ti6h2Cg3YGkZA8NSDqMZDjB138G6_b-pioIL9ix5BOkE9TPvPGRYNtVMQO_0l7pF6mad5nxtWKpx4z-FkxITACRG4dwtSLtDOFd_kETRalEg7AXnXQ2eBw1RY/s1600/Bollinger+Bands+Sheet.png" /></a></span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"><b>Bollinger Bands consist of a middle band with two outer bands.</b> The middle band is a simple moving average
 that is usually set at 20 periods. A simple moving average is used 
because the standard deviation formula also uses a simple moving 
average. The look-back period for the standard deviation is the same as 
for the simple moving average. The outer bands are usually set 2 
standard deviations above and below the middle band.</span></span></div>
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<span style="font-size: small;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4J2pyq2nolXNJtqXs-0Q659n996kLM4nsmGbDCCHhJ0MF8MmGgz8PqG4x7l2oY-NIt6ZOM7xB4bPcRY5bfd9SaFAheSe-o9DlSoevV2yjdF2Yq6SbV0BmPB38A2kWMzD-exuTPTyCwrA/s1600/bbs-1-spyexam.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="429" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4J2pyq2nolXNJtqXs-0Q659n996kLM4nsmGbDCCHhJ0MF8MmGgz8PqG4x7l2oY-NIt6ZOM7xB4bPcRY5bfd9SaFAheSe-o9DlSoevV2yjdF2Yq6SbV0BmPB38A2kWMzD-exuTPTyCwrA/s1600/bbs-1-spyexam.png" /></a></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Settings can be adjusted to suit the characteristics of particular 
securities or trading styles. Bollinger recommends making small 
incremental adjustments to the standard deviation multiplier. Changing 
the number of periods for the moving average also affects the number of 
periods used to calculate the standard deviation. Therefore, only small 
adjustments are required for the standard deviation <b>multiplier</b>.
  An increase in the moving average period would automatically increase 
the number of periods used to calculate the standard deviation and would
 also warrant an increase in the standard deviation <b>multiplier</b>.
 With a 20-day SMA and 20-day Standard Deviation, the standard deviation
 multiplier is set at 2. Bollinger suggests increasing the standard 
deviation multiplier to 2.1 for a 50-period SMA and decreasing the 
standard deviation multiplier to 1.9 for a 10-period SMA.
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<h2 class="sectionedit4" id="signalw-bottoms" style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Signal: W-Bottoms</span></h2>
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W-Bottoms were part of Arthur Merrill's work that identified 16 patterns
 with a basic W shape. Bollinger uses these various W patterns with 
Bollinger Bands to identify W-Bottoms. A “W-Bottom” forms in a downtrend
 and involves two reaction lows. In particular, Bollinger looks for 
W-Bottoms where the second low is lower than the first but holds above 
the lower band. There are four steps to confirm a W-Bottom with 
Bollinger Bands. First, a reaction low forms. This low is usually, but 
not always, below the lower band. Second, there is a bounce towards the 
middle band. Third, there is a new price low in the security. This low 
holds <b>above</b> the lower band. The ability to hold above 
the lower band on the test shows less weakness on the last decline. 
Fourth, the pattern is confirmed with a strong move off the second low 
and a resistance break. </span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEja6YL3YNUh1ENVABZBUyDDsvylsrsCvMWUOeniP3-D2Ep4gbFfy5Hg2884ReZJzD43t133LChyphenhyphenySDWQO-l8WWAv-WjACMJG4WeL86aHlrOtBiHemIfWv4jYy_ZrR66j54fVTew6qrMCMA/s1600/bbs-2-jwnwbot.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="429" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEja6YL3YNUh1ENVABZBUyDDsvylsrsCvMWUOeniP3-D2Ep4gbFfy5Hg2884ReZJzD43t133LChyphenhyphenySDWQO-l8WWAv-WjACMJG4WeL86aHlrOtBiHemIfWv4jYy_ZrR66j54fVTew6qrMCMA/s1600/bbs-2-jwnwbot.png" /></a></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: x-large;"><span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Chart 2 shows Nordstrom (JWN) with a W-Bottom in January-February 2010. 
First, the stock formed a reaction low in January (black arrow) and 
broke below the lower band. Second, there was a bounce back above the 
middle band. Third, the stock moved below its January low and held above
 the lower band. Even though the 5-Feb spike low broke the lower band, 
Bollinger Bands are calculated using closing prices so signals should 
also be based on closing prices. Fourth, the stock surged with expanding
 volume in late February and broke above the early February high. Chart 3
 shows Sandisk with a smaller W-Bottom in July-August 2009.  </span></span></span></span></div>
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<h2 class="sectionedit5" id="signalm-tops" style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Signal: M-Tops</span></h2>
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M-Tops were also part of Arthur Merrill's work that identified 16 
patterns with a basic M shape. Bollinger uses these various M patterns 
with Bollinger Bands to identify M-Tops. According to Bollinger, tops 
are usually more complicated and drawn out than bottoms. Double tops, 
head-and-shoulders patterns, and diamonds represent evolving tops. 
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In its most basic form, an M-Top is similar to a double top. However, 
the reaction highs are not always equal. The first high can be higher or
 lower than the second high. Bollinger suggests looking for signs of 
non-confirmation when a security is making new highs. This is basically 
the opposite of the W-Bottom. A non-confirmation occurs with three 
steps. First, a security creates a reaction high above the upper band. 
Second, there is a pullback towards the middle band. Third, prices move 
above the prior high but fail to reach the upper band. This is a warning
 sign. The inability of the second reaction high to reach the upper band
 shows waning momentum, which can foreshadow a trend reversal. Final 
confirmation comes with a support break or bearish indicator signal. </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: x-large;"><span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Chart 4 shows Exxon Mobil (XOM) with an M-Top in April-May 2008. The 
stock moved above the upper band in April. There was a pullback in May 
and then another push above 90. Even though the stock moved above the 
upper band on an intraday basis, it did not CLOSE above the upper band. 
The M-Top was confirmed with a support break two weeks later. Also, 
notice that MACD formed a bearish divergence and moved below its signal 
line for confirmation. 
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiq2mSMemCBtLmH9MJSt31bf7PjLanK6SQhEG7p4XoVJuiKnzrF5C8p8Ov5UHD6b4kZ-rJX4CVsg2MrnwfRldiDZd_rdlmlxXE8gL6XDF5Qg4kFN2cxkFO1fTkLYedW3fazZg-ybk-fmf4/s1600/bbs-5-phmmtop.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="429" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiq2mSMemCBtLmH9MJSt31bf7PjLanK6SQhEG7p4XoVJuiKnzrF5C8p8Ov5UHD6b4kZ-rJX4CVsg2MrnwfRldiDZd_rdlmlxXE8gL6XDF5Qg4kFN2cxkFO1fTkLYedW3fazZg-ybk-fmf4/s1600/bbs-5-phmmtop.png" /></a></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Chart 5 shows Pulte Homes (PHM) within an uptrend in July-August 2008. 
Price exceeded the upper band in early September to affirm the uptrend. 
After a pullback below the 20-day SMA (middle Bollinger Band), the stock
 moved to a higher high above 17. Despite this new high for the move, 
price did not exceed the upper band. This flashed a warning sign. The 
stock broke support a week later and MACD moved below its signal line. 
Notice that this M-top is more complex because there are lower reaction 
highs on either side of the peak (blue arrow). This evolving top formed a
 small head-and-shoulders pattern. 
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<h2 class="sectionedit6" id="signalwalking_the_bands" style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Signal: Walking the Bands</span></h2>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">
Moves above or below the bands are not signals per se. As Bollinger puts
 it, moves that touch or exceed the bands are not signals, but rather 
“tags”.  On the face of it, a move to the upper band shows strength, 
while a sharp move to the lower band shows weakness. Momentum 
oscillators work much the same way. Overbought is not necessarily 
bullish. It takes strength to reach overbought levels and overbought 
conditions can extend in a strong uptrend. Similarly, prices can “walk 
the band” with numerous touches during a strong uptrend. Think about it 
for a moment. The upper band is 2 standard deviations above the 
20-period simple moving average. It takes a pretty strong price move to 
exceed this upper band. An upper band touch that occurs after a 
Bollinger Band confirmed W-Bottom would signal the start of an uptrend. 
Just as a strong uptrend produces numerous upper band tags, it is also 
common for prices to never reach the lower band during an uptrend. The 
20-day SMA sometimes acts as support. In fact, dips below the 20-day SMA
 sometimes provide buying opportunities before the next tag of the upper
 band. 
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<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="font-size: x-large;"><span style="font-size: small;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaFmrXxjrdocj_sTDn0bSquFeZfvc9fTlH0Yma1KVWuH9lrYT5U8tPAbBN_qGpzDIPw8cK9L3hoWQFNCXKMbAfzW-xu8-cNomR5kAp2FDMrlJfDIFGz-tBrE34ZMYpJNA3xSi_T07-_2o/s1600/bbs-6-apdwalk.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="429" data-original-width="520" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaFmrXxjrdocj_sTDn0bSquFeZfvc9fTlH0Yma1KVWuH9lrYT5U8tPAbBN_qGpzDIPw8cK9L3hoWQFNCXKMbAfzW-xu8-cNomR5kAp2FDMrlJfDIFGz-tBrE34ZMYpJNA3xSi_T07-_2o/s1600/bbs-6-apdwalk.png" /></a></span></span></span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Chart 6 shows Air Products (APD) with a surge and close above the upper 
band in mid-July. First, notice that this is a strong surge that broke 
above two resistance levels. A strong upward thrust is a sign of 
strength, not weakness. Trading turned flat in August and the 20-day SMA
 moved sideways. The Bollinger Bands narrowed, but APD did not close 
below the lower band. Prices and the 20-day SMA turned up in September. 
Overall, APD closed above the upper band at least five times over a four
 month period. The indicator window shows the 10-period Commodity 
Channel Index (CCI). Dips below -100 are deemed oversold and moves back 
above -100 signal the start of an oversold bounce (green dotted line). 
The upper band tag and breakout started the uptrend. CCI then identified
 tradable pullbacks with dips below -100. This is an example of 
combining Bollinger Bands with a momentum oscillator for trading 
signals. </span></div>
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<h3 class="entry-title">
<span style="font-family: "arial" , "helvetica" , sans-serif;">John Bollinger’s 22 Rules For Using Bollinger Bands</span></h3>
<span style="font-family: "arial" , "helvetica" , sans-serif;">Bollinger band is a band plotted two standard deviations far from a 
easy shifting average, developed by means of well-known technical trader
 John Bollinger.</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">
</span><span style="font-family: "arial" , "helvetica" , sans-serif;">Bollinger Bands are broadly and efficiently utilized by forex traders
 international. Probably the most nice joys of getting invented an 
analytical methodology corresponding to Bollinger Bands is seeing what 
other folks do with it. Whereas there are various methods to make use of
 Bollinger Bands within the forex market, following are a number of 
ideas that function a excellent starting level.</span><br />
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Bollinger Bands present a relative definition of excessive and low. By 
means of definition value is excessive on the higher band and low on the
 decrease band.
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
That relative definition can be utilized to match price action and indicator motion to reach at rigorous buy and sell choices.
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Acceptable symptoms can also be derived from momentum, quantity, sentiment, open passion, inter-market information, and so on.
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
If multiple indicator is used the indications must now not be right away
 associated to at least one any other. As an example, a momentum 
indicator would possibly complement a quantity indicator efficiently, 
however two momentum symptoms are not higher than one.
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Bollinger Bands can be utilized in sample reputation to outline/make 
clear pure value patterns similar to “M” tops and “W” bottoms, momentum 
shifts, and many others. .
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Tags of the bands are simply that, tags no longer signals. A tag of the 
higher Bollinger Band is NOT in-and-of-itself a sell signal. A tag of 
the decrease Bollinger Band is NOT in-and-of-itself a buy signal.
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
In trending markets value can, and does, stroll up the higher Bollinger Band and down the decrease Bollinger Band.
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Closes outdoor the Bollinger Bands are in the beginning continuation 
signals, now not reversal signals. (This has been the foundation for a 
lot of a hit volatility breakout programs.)
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<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
The default parameters of 20 sessions for the transferring average and 
standard deviation calculations, and two standard deviations for the 
width of the bands are simply that, defaults. The true parameters wanted
 for any given market/process is also completely different.
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
The average deployed as the center Bollinger Band will have to no longer
 be one of the best one for crossovers. Somewhat, it must be descriptive
 of the intermediate-time period trend.
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
For constant value containment: If the average is lengthened the 
selection of standard deviations must be elevated; from 2 at 20 classes,
 to 2.1 at 50 sessions. Likewise, if the average is shortened the choice
 of standard deviations will have to be decreased; from 2 at 20 
sessions, to 1.9 at 10 classes.
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Conventional Bollinger Bands are based totally upon a easy transferring 
average. It’s because a easy average is used within the standard 
deviation calculation and we are looking to be logically constant.
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Exponential Bollinger Bands do away with unexpected adjustments within 
the width of the bands as a result of huge value adjustments exiting the
 again of the calculation window. Exponential averages need to be used 
for BOTH the center band and within the calculation of standard 
deviation.
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Make no statistical assumptions in line with using the standard 
deviation calculation within the building of the bands. The distribution
 of safety costs is non-commonplace and the everyday pattern dimension 
in most deployments of Bollinger Bands is simply too small for 
statistical value. (In follow we usually in finding ninety%, now not 
ninety five%, of the information inside of Bollinger Bands with the 
default parameters)
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
%b tells us the place we’re in terms of the Bollinger Bands. The place 
throughout the bands is calculated the usage of an adaptation of the 
method for Stochastics
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
%b has many makes use of; among the many extra vital are identification 
of divergences, sample acceptance and the coding of trading techniques 
the usage of Bollinger Bands.
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Warning signs will also be normalized with %b, disposing of mounted 
thresholds within the course of. To try this plot 50-duration or longer 
Bollinger Bands on a hallmark after which calculate %b of the indicator.
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
BandWidth tells us how broad the Bollinger Bands are. The uncooked width
 is normalized the usage of the center band. The use of the default 
parameters BandWidth is 4 occasions the coefficient of adaptation.
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
BandWidth has many makes use of. Its hottest use is to indentify “The 
Squeeze”, however can also be helpful in determining trend 
modifications.
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Bollinger Bands can be utilized on most monetary time sequence, together
 with equities, indices, overseas exchange, commodities, futures, 
options and bonds.
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Bollinger Bands can be utilized on bars of any size, 5 minutes, one 
hour, day-to-day, weekly, and so forth. The secret is that the bars 
should incorporate sufficient process to present a strong image of the 
associated fee-formation mechanism at work.
</span></li>
<li><span style="font-family: "arial" , "helvetica" , sans-serif;">
Bollinger Bands don’t present steady recommendation; slightly they lend a
 hand indentify setups the place the chances could also be on your 
favour.
</span></li>
</ul>
<h2 class="sectionedit7" id="conclusions">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Conclusions</span></h2>
<span style="font-family: "arial" , "helvetica" , sans-serif;">
</span>
<br />
<div class="level2">
<span style="font-family: "arial" , "helvetica" , sans-serif;">

</span><span style="font-family: "arial" , "helvetica" , sans-serif;">
Bollinger Bands reflect direction with the 20-period SMA and volatility 
with the upper/lower bands. As such, they can be used to determine if 
prices are relatively high or low. <b>According to Bollinger, the bands should contain 88-89% of price action, which makes a move outside the bands significant.</b>
 Technically, prices are relatively high when above the upper band and 
relatively low when below the lower band. However, relatively high 
should not be regarded as bearish or as a sell signal. Likewise, 
relatively low should not be considered bullish or as a buy signal. 
Prices are high or low for a reason. As with other indicators, Bollinger
 Bands are not meant to be used as a stand-alone tool. Chartists should 
combine Bollinger Bands with basic trend analysis and other indicators 
for confirmation. </span><br />
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BB Bollinger Bands Trend 18. Bollinger Bands

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