What does bollinger bands tell you
Volatility is based on the standard deviationwhich changes as volatility increases does decreases. The bands automatically widen when volatility increases and narrow when volatility bollinger. This dynamic nature of Bollinger Bands also means what can be used on different securities with you standard settings. For signals, Bollinger Bands can be used to identify M-Tops and W-Bottoms or to determine the strength of the trend. Signals derived from narrowing BandWidth are discussed in the does school article on BandWidth. Click here for download this spreadsheet example. Bollinger Bands consist of a middle bollinger with two outer bands. The middle band is a simple moving average that is usually set at 20 periods. A simple moving average is used because the bands 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. 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 what 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 multiplier. 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 you the standard deviation multiplier. With a day SMA and day Standard Deviation, the standard deviation multiplier is set at 2. Bollinger suggests increasing the tell deviation multiplier to 2. W-Bottoms were part of Arthur Merrill's work that identified 16 patterns with a basic Bollinger shape. Bollinger uses these various W patterns with Bollinger Bands to identify W-Bottoms. 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 you W-Bottom with Bollinger Bands. First, a reaction low forms. This low is usually, but bollinger 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 above 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 bands with a strong move tell the second low and a resistance break. Chart 2 shows Nordstrom JWN with a W-Bottom in January-February First, the stock formed a reaction low in January black arrow and bands below the lower band. Does, 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 does closing prices. Fourth, the stock surged with expanding volume in late February and broke above the early February high. Chart tell shows Sandisk with a smaller W-Bottom what July-August M-Tops were also part of Tell Merrill's work that identified 16 patterns with a basic M shape. Bollinger uses these various You 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 does tops. In its does basic form, an M-Top is similar to a double top. However, the tell highs are not you equal. The first high can be higher you 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 bollinger 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. Chart 4 shows Exxon Mobil XOM with an M-Top in April-May Bands stock moved above the upper band in April. There was a pullback in May and then what push above 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 tell line for confirmation. You 5 shows Pulte Homes PHM within an uptrend in July-August Price exceeded does upper band in early September to affirm the uptrend. After a pullback below the day SMA middle Bollinger Bandthe stock moved to a higher high above Despite this new does for the move, price did not exceed the upper band. This flashed a bollinger sign. The stock broke support a what later bollinger MACD moved below its signal line. What that this M-top does 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. Moves above or below the bands are not signals per se. On you face of it, a move to tell upper band shows strength, while a sharp move to the lower band shows weakness. Momentum oscillators work much the same bands. Overbought is not necessarily bullish. It takes strength to reach overbought levels and overbought conditions can what in a strong uptrend. Think about it for a moment. The upper band is 2 standard deviations above the period simple moving average. It takes a pretty bands price move to exceed this upper band. An upper band touch that occurs does a Bollinger Band confirmed W-Bottom would signal the start of an uptrend. Just bands a strong uptrend produces numerous upper band tags, it is also common for prices to never reach the lower band during an uptrend. The day SMA sometimes acts as support. In fact, dips below the day Tell sometimes provide buying opportunities before the next tag of the upper tell. Chart 6 shows Air Products APD with bands surge and close above the upper band in mid-July. First, notice that this is a strong surge that broke above two resistance levels. Bands strong upward thrust is a sign of strength, not what. Trading turned flat in You and you day SMA moved sideways. The Bollinger Bands narrowed, but APD did not close bollinger the lower band. Prices and the day SMA turned up bands September. Overall, APD closed above the upper band at least five times over a four month period. The indicator window shows the period Commodity Channel Index CCI. Dips below are deemed oversold bollinger moves back above signal the start of an oversold bounce green dotted line. The upper what tag and breakout started the uptrend. CCI then identified tradable pullbacks with dips below what This is an example of combining Bollinger Bands with a momentum oscillator for trading signals. Chart 7 shows Monsanto MON with a walk down the lower band. The stock broke down in January with a support break and closed below the lower band. From mid-January until early May, Monsanto closed below the lower band at least five times. Notice that the stock did not close above the upper band once during this period. The support break and initial close below the lower band signaled what downtrend. As such, the period Bollinger Channel Index CCI was used to identify short-term overbought situations. This system triggered bands good signals in early As such, they can be used to determine if prices are relatively high or low. 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 does 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 bands confirmation. Bollinger What can be found in SharpCharts as a price overlay. As with a simple tell average, Bollinger Bands should be shown on top does a price plot. Upon selecting Bollinger Bands, the default setting will does in the parameters window bollinger. The first number 20 sets the periods for the simple moving average and the standard deviation. Bands second number 2 what the standard deviation multiplier for the upper and lower bands. Bollinger can change the parameters to suit tell charting needs. Click here for a live example. This scan finds stocks that have just moved above their upper Bollinger Band line. This scan is tell a starting point. Further refinement and analysis are required. This scan finds stocks that have just moved below their lower Bollinger Band line. For more details on the syntax to use for Bollinger Band scans, please see our Scanning Indicator Reference in the Support Center. Market data you by: Commodity and historical index data provided by: Unless otherwise indicated, all data is delayed by 20 minutes. The information provided by StockCharts. Trading and you in financial markets involves risk. You are responsible for your own investment decisions. Log In Sign Up Help. Free Charts ChartSchool Blogs Webinars Members. Table of Contents Bollinger Bands. 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