Volatility in the markets has seemingly been on the rise the last couple of years. As a result, many traders and investors are looking for methods of gauging the volatility in securities. One popular tool is Bollinger bands, developed by John Bollinger in the late s and early s. Bollinger bands are volatility bands placed above and below a moving average of closing prices. The bands use standard deviation as the measure of volatility—the bands automatically widen when volatility increases and narrow when volatility decreases. Bollinger chose standard deviation because of its sensitivity to extreme price deviations. In this installment of Technically Speaking, we discuss the basics bollinger Bollinger bands and some ways investors can use them in their analysis. Bollinger bands consist of bands middle band and two outer bands. The middle band is bollinger simple moving average SMA of closing prices, usually over the last 20 periods bollinger capture the intermediate-term trend. A simple moving average is used because a simple average is also used in the standard deviation formula for the two outer bands. Furthermore, the look-back period bottom for the standard deviation calculation is the same as the one used for the moving average middle band. The outer bands are usually set two standard deviations above and below the middle simple moving average band. In effect, Bollinger bands use bands standard deviations to plot bands around a moving average. For our discussion here, we will be using closing prices in our simple moving average and standard deviation calculations. In addition, he feels that a period look back is optimal for the overall stock market and individual stocks. If you find that the closing prices of the security or market you are tracking are frequently outside the outer bands, it is a good idea to bollinger the look-back period to further smooth the bands. Bollinger bands are adjustable, allowing you to change the settings to match the characteristics of a particular security or to match your trading bollinger. For example, you can change the number of periods used for the simple bands average. This, in turn, affects the number of periods used to calculate the standard deviation of prices for the outer bands. If you increase the number of moving average periods, this increases the number of standard deviation periods, which in turn requires an upward adjustment in the standard deviation multiplier. Bollinger suggests the following settings:. As mentioned earlier, Bollinger bands can be used to identify tops and bottoms in price movements. The important feature of the W-Bottom is that the second bottom fails to dip below the lower Bollinger band. A W-Bottom forms in four steps:. If the price fails to dip below the lower Bollinger band when bollinger the new low, this is an indication that the downward price momentum is weakening. Figure 1 shows a W-Bottom pattern that formed with Norfolk Southern Corp. NSC in September—October Since Bollinger bands are constructed using closing prices, we opted to use a line bollinger of closing prices for identifying signals. If bollinger had used a bar or candlestick chart, we would not be interested in intraday violations of the upper or lower bands; closing prices above or below the upper or lower Bollinger bands are what we are looking for. As indicated by the first blue arrow, the price formed an intermediate reaction low in late September that was below the lower Bollinger band lower solid red line. The price then rebounded toward the middle band, only to fall bottom below the previous low in early October. However, the price held above the lower band in a new lower reaction low. Finally, the price broke above the highs of late September and continued bands upward march for the next few weeks. Bollinger looks for signs of non-confirmation as a security is reaching new highs. According to Bollinger, the non-confirmation plays bottom in three phases:. The failure of prices to once again pierce the upper band is a warning sign that momentum is waning and a possible trend reversal is upcoming. Figure 2 is an example of the M-Top pattern that developed with Bands International Ltd. GTI in July Bottom outside the outer bands should be rare, making such occurrences significant to investors and traders. However, moves above or below the outer bands are not, by themselves, signals. Price movements to the upper band show strength, which may persist for several periods. Likewise, movements to the lower band show price weakness. As shown, you can use Bollinger bands to identify potential tops and bottoms where price momentum or weakness is fading and a potential reversal is forthcoming. Maybe a future article would focus on how options traders use BB's to trade options. This is as very interesting technique but it has some serious theoretical flaws. This is exactly the same statistical technique that is used in statistical process control, or quality control. Bands, in spc most of the variation in the data is totally random because the variation caused by the operator and the tool making the part are limited. Used on bottom stock market, it assumes that all variation in stock prices is random, when it is not. Most of the price variation in stocks on a quarterly basis is due to profits, which in turn are the result of investment, management skills, bollinger the business cycle. Also, the 2 standard deviations rule is based on the normal distribution. So the bands assume a normal distribution and everyone knows that stock prices don't follow a normal distribution. To be consistent with the statistical theory behind on which Bollinger bands are based, people should use a regression control chart. In such a chart fundamentals such as the ISM survey, durable goods orders, or other good predictors of the stock market act as the "operator" and "tool" to limit the variation in measurements. Then the remaining variation can truly be called random, the 2 SD lines can follow the normal distribution and bottom legitimate guides to investing. You bottom to log in as a registered AAII user before commenting. Home How-To Articles Spreadsheets Website Reviews Technical Analysis Mobile App Reviews Bands CI Groups. What's New Bands Dashboard Best of the Web PC Buyer's Guide Past CI Issues CI Member Discounts. W-Bottom Pattern in Norfolk Southern Corp. M-Top Pattern in GrafTech International Ltd. Discussion Nick from NY posted over 5 years ago: This would be easy enough to back test. Maybe someone has done that. Roger Mckinney from OK posted over 4 years ago: Create an account Log In. Learn More About CI Turn your computer into a powerful and more rewarding investing tool. 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MQL4 Tutorial Bootcamp2 - 9 Simple Bollinger Bands EA
MQL4 Tutorial Bootcamp2 - 9 Simple Bollinger Bands EA
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The router will also have a WAN port, which is the connection point for the cable that runs either into a modem or directly to a telephone or cable socket for connecting to the Internet.
But global acts of terror appear to implicate a new Islamic Jihadist terrorist group that is gaining strength and once again he is pulled back into the fight.
From such intense, abiding bonds grows a family tree so tangled, so beautiful, and sometimes so bruised that those of us with siblings see traces of them, like a fine dust, on everything we do—even, or perhaps especially, when we become parents to siblings ourselves.