Not long ago I have posted about Bollinger band indicator. Lately I have come across some more facts about the Bollinger band in my reading. Here I would like to share with you some of the important points I have come across. Although personally I not yet use Bollinger Band in my trading system, there are no doubt this is a good indicator and many successful traders using it.
Here are some additional points about Bollinger Band.
- Bollinger Band does not indicate buy or sell signals. It must be used in conjunction with other indicators.
- Bollinger Band can use to clarify the double tops/double bottoms pattern (“M” and “W” pattern)
- Close outside the Band usually indicates continuation pattern, and not reversal.
- The center line of Bollinger Band is SMA
- If the length of SMA being increase, the deviation should be increased. E.g. 20 period with 2-deviation, 50 period with 2.5 deviation.
- Touching the band dose not indicate sell or buy signal. Touching the band is useless information without confirmation with other indicators.
- New high/low outside the band follow by another high/low inside the band indicates highly chances of reversal.
- When double-bottoms are formed, a buy signal is indicated when first bottom penetrate the band and the second bottom remain above the band. The bottoms can be higher or lower than each other in any way.
- When double-tops are formed, a sell signal is indicated when first top penetrate outside and the second peak is below the upper band.
- A breakout is highly going to happened after Bollinger-squeeze. Bollinger band does not indicate the direction of the breakout.
- Using divergence and hidden-divergence can get higher probably of the breakout direction after Bollinger-squeeze.
- Bollinger Band period can be fine tuned to match your price. In a reversal in downtrend, the price needs to form a higher second low-point. The Band should hold support for second low. If the second low penetrates the band, the period can be increase. Same goes for the uptrend reversal.
The above are little information I manage to learn yesterday. Hope this is useful for you all.
