John Bollinger / John Bollinger is President and Founder of Bollinger Capital Management, investment management companies, providing technical analysis-based wealth management services to individuals, corporations, trusts and pension funds. Bollinger publishes Capital Growth Letter. For many years, John Bollinger was the chief analyst for the nationwide cable television channel Financial News Network. (FNN), dedicated to financial news. He currently continues to provide weekly analytical commentary on CNBC., successor to FNN, and for many years was the Chief Market Analyst at the Financial News Network.
The prerequisites for the financial career of John Bollinger periodically arose in his life path from early childhood.. In his book Bollinger on Ribbons (Bands) Bollinger Bands ", the author describes it as follows: “For the first time I encountered the stock market, when I was a child and inherited several Fruhauf shares, companies, which subsequently rolled down, rolled down and, eventually, went bankrupt.
The second time I ran into him was in the late sixties, already as a young man, when i worked at the media museum, Institution, owned by three brothers, whose father was a successful high-tech underwriter at the time. Back then, tech stocks were all the rage, and my leader fell under the general influence. Not really understanding the details, I knew instinctively, that something is wrong with it. And the next time it happened in the mid-1970s in the form of a damage assessment, inflicted on my mother by, that she kept mutual fund stocks during the bear market.
My last formative meeting took place in the late 1970s, when oil “was on an inevitable rise to 50 or 100 dollars per barrel ", and the subject of universal passion were the shares of oil companies, especially small stocks, engaged in deep drilling for gas in such places, like the Adanarko pool in Oklahoma. Needless to say, that oil fell, instead of growing, and oil stocks as a whole collapsed, and many of the most risky stocks have disappeared altogether.
There should have been a better approach, and I have been looking for him for a long time, but could not find. Finally, i had to create it. It's called rational analysis. (Rational Analysis). Rational analysis is a combination of technical analysis and fundamental analysis in a relative environment. A key tool for rational analysis - tapes (streaks) Bollinger Bands ".
Bollinger Bands combine the properties of such indicators, as a moment, volume, open interest, standard deviation, etc.
Bollinger indicator lines are plotted as a band along the moving average curve. The band width is proportional to the root-mean-square deviation of the price value from the given order of the moving average for the studied time period
- Top Ribbon = Middle Ribbon + 2 standard deviations
- Average tape = 20-period moving average
- Bottom Ribbon = Middle Ribbon - 2 standard deviations
Standard deviation - this is a statistical calculation, measuring, how far the values are from the mean - in this case, how far prices are scattered from the 20-day moving average. Statistically 95% values falls within two standard deviations of the mean, which means, what 95% prices are located between the upper and lower Bollinger bands.
Application of Bollinger Bands in Forex.
The essential difference between currency and stock trading is, that there is no volume in forex. There is only a price. It is important that the price confirms its movement from the previous non-directional range. In this example, a breakout by the price of a narrow corridor is interpreted as a buy signal.
Bollinger Bands Percentage Indicator.
Dynamic momentum indicator. Default parameters:
- MA20 period(sets the measurement period of the average) Standard deviation -2 ( specifies the placement of stripes around the middle). Identification of a trend reversal is also possible with the PB Percentage indicator (BLG B%). Formula = (Closure-Bottom Stripe)/(Top lane-lower lane).
A useful feature of this indicator is the use of divergence.
Bollinger Bands in Wave Analysis.
Bollinger Bands can help determine the calculation of Eliot waves. (Period 22, deviation = 1.85) and a biased exponential Moving Average with the following values (period 8, offset = 8). The advantage of this method, no need to count waves of smaller order.
RSI system - Bollinger.
Combination RSI and Bollinger Bands. A buy signal appears, when the RSI falls below the lower Bollinger band, Sell signal, when the RSI rises above the upper Bollinger band. There are many counter-trend signals, therefore, we need to add a trend filter, namely the MACD indicator, if MACD>0. then the trend is up, if MACD<0,then the trend is downtrend RSI levels 80% And 20% only suitable for ranges. In this example, a breakout by the price of a narrow corridor is interpreted as.
Band width and compression.
Volatility trading. All convergence signals appear, when the market calms down, volatility is decreasing, there is a tendency of the price chart to the moving average. All convergence signals are weak signals of trend continuation or market consolidation in anticipation of a new trend..
Bollinger line divergence signals a strengthening of the existing trend, or the beginning of a new. These areas are the most interesting from the point of view of opening positions.. If we have an increase in volume at the divergence of the Bollinger Bands, confirming signals from the MACD indicator, fake breakout, then there is a great opportunity to open positions at the very beginning of the trend. Moreover, the previous convergence, narrow range squeeze preceded strong new trend moves.
Inside days and Bollinger bands.
By definition, price makes new highs in an uptrend and new lows in a downtrend, which means, she will definitely touch the strip. Keeping that in mind, from our filter it is required, so that buy signals are generated only, if the candle is after that, which touched the Bollinger Band, will not make a new high or low. This type candles commonly known, as an "inner day". Best time frame for finding interior days – daytime charts, but this strategy can also be used on the sentry, weekly and monthly charts. The combination of inside days with Bollinger Bands increases the likelihood, that we will guess the top or bottom after, how the price reached an extreme level. Usually, the larger the time scale, the less often the signal appears, but it will be more meaningful.
Candlesticks and their patterns illustrate the psychology of the market at a particular point in time. Definitely, the inside candlestick represents a period of low volatility. If volatility begins to decrease on an uptrend, and the market is unable to make a new high (as evidenced by the inner candle), then we can conclude, that the strength decreases and there is a chance of reversal.
Conclusion.
Bollinger states, that his indicator does not give absolutely accurate buy and sell signals based on the price touching the edges of the bands, but they can define boundaries, between which price movements can be investigated using additional indicators.
Bollinger Bands are used, usually, in conjunction with other indicators. The above-described "wanderings" of prices along the lines are especially in need of filtering.. Most common choice of technical analysts – RSI (Relative Strength Index). John Bollinger recommends RSI, also allowing the use of MACD indicators, Money Flow or volume balance (highly controversial indicator, heavily criticized, in particular, Dr. Alexander Elder – a well-known author of books and manuals for traders in Russia).
The main purpose of using indicators – filter the signals of the "edge walking" described above. Often, when another indicator shows a change in trend, the price really follows the middle or opposite lines.
What changes to the indicator itself will help improve its effectiveness?
First – number of periods, by which volatility and simple moving average are calculated. By default it is – 20 days. The meaning of optimizing this value – make the moving average work as support and resistance lines, but only for the correction phase after price highs or lows.
Bollinger Bands define the relative highs and lows of the market. This definition can be used to compare price and indicator actions., to come to a decision to buy or sell.
