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Bollinger Bands, its trading strategy and 什麼是布林通道(Bollinger Band) examples explained
What is Bollinger Band?
Who created Bollinger Band ?
John Bollinger a noted technical analyst invented Bollinger Bands. His finding 什麼是布林通道(Bollinger Band) was influenced by J.M. Hurst's who came with notion of trading envelop around stocks.
What are the components of 什麼是布林通道(Bollinger Band) Bollinger band?
Bollinger band has three important dynamic lines
1. Middle Bollinger Band - This is a plot of 20 period simple moving average.
2. Lower Bollinger Band - Middle band - 2 * 20 period standard Deviation.
3. Upper Bollinger Band - Middle band + 2 * 20 period standard Deviation.
Concept of Bollinger Band
Bollinger Band indicates volatility around price of a stock. When price reaches upper band it is considered as overbought and could be a good exit point and when stock approaches lower band it is considered as good entry point. These are highs/lows or Support and Resistance . When stock has high price fluctuation the band expands and when Volatility is low they contract to adjust with change in price volatility.
In normal distribution, 68% of the time price should be within one standard deviation and 95% of the time it should be within two standard deviation.
a. They provide excellent support and resistance in sideways market . To identify sideways market look for stocks where 50/100 DMA is flat (parallel to date axis). b. They can be used for to determine Trend reversal. When stock breaks upper band and stay above it for few trading sessions then it is considered to be bullish and when stock breaks lower band and stays below for some trading sessions bearish signal is generated. c. In strong bullish cycle when stock is moving along with upper band and then moves towards middle band it can be considered as bullish trend reversal. In 什麼是布林通道(Bollinger Band) the same way when stock is moving lower band and then moves towards middle bearish trend reversal can be detected. d. They gives very good idea of volatility of the stock. The wider the band the more volatility it has. e. A very narrowing band means indecision on price movement and a possible break out is imminent.
Breakout of Bollinger Band
1. When the price break upper Bollinger band and both upper & lower band is expanding then probability of further up movement is high. If both bands are expanding fast means trend reversal has happened. If the price breaks below lower band and 什麼是布林通道(Bollinger Band) both upper & lower is expanding then chances are that it will further go down. 2. When price break upper band and both bands are not expanding means false signal of break out. 3. When bands starts contracting after a trend means momentum in trend is loosing.
Our Website provides free Stock Screening Reports on Support/Resistance By Bollinger Bands at: Stock Broke SupportStocks Nearing SupportStocks Nearing ResistanceStock Broke Resistance Limitations of Bollinger Band
a.They alone do not provide absolute buy and sell signal.
b. In strong trending Market, Bollinger bands looses its significance. They tend to give many wrong signals. Its best to avoid they in such situations. c. In actual scenario, Price break above Bollinger band is far more than 95% (as per normal distribution) and not all break gives signal of trend reversals. d. They often need support of another technical indicator to determine action.
Color Convention of Bollinger Band and TopStockResearch
1. Dashed grey lines which represents bollinger band.
2. Black lines represent 什麼是布林通道(Bollinger Band) price.
Caution for New Traders
Bollinger bands are dynamic and they move depending on volatility. So the support/resistance to 什麼是布林通道(Bollinger Band) may not be valid on any other day. That is why it is said it provides relative high & lows or support/resistance.
Bollinger Bands Breakout Strategy
Bollinger Bands Breakout Strategy is the strategy version of Bollinger Bands Filter study version, which can be 什麼是布林通道(Bollinger Band) found under my scripts page. The strategy goes long when price closes above the upper band and goes short signal when 什麼是布林通道(Bollinger Band) price closes below the lower band.
Bollinger Bands is a classic indicator that uses a simple moving average of 20 什麼是布林通道(Bollinger Band) periods, along with plots of upper and lower bands that are 2 standard deviations away from the basis line. These bands help 什麼是布林通道(Bollinger Band) 什麼是布林通道(Bollinger Band) visualize price volatility and trend based on where the price is, in relation to the bands.
The strategy doesn't take into account any other parameters such as Volume / RSI / Fundamentals etc, so user must use discretion based on confirmations from another indicator or based on fundamentals. The strategy results are based on purely long and short trades and doesn't 什麼是布林通道(Bollinger Band) take into account any user defined targets or stop losses.
The strategy works great when the price closes above/below upper/lower bands with continuation on next bar. It is definitely useful to have this strategy or the Bollinger Bands filter along with other indicators to get early glimpse of breach/fail of bands on candle close during BB squeeze or based on volatility .
This can 什麼是布林通道(Bollinger Band) be used on Heikin Ashi candles for spotting trends, but HA candles are not recommended for trade entries as they don't reflect true price of the asset.
The strategy settings default is 55 SMA and 1 standard deviation for Bollinger Bands 什麼是布林通道(Bollinger Band) filter, but these can be changed from settings.
It is definitely worth reading the 22 rules of Bollinger Bands written by 什麼是布林通道(Bollinger Band) 什麼是布林通道(Bollinger Band) John Bollinger if interested in trading Bollinger Bands successfully.
Bollinger Bands Width (BBW)
Bollinger Bands Width (BBW) is a technical analysis 什麼是布林通道(Bollinger Band) 什麼是布林通道(Bollinger Band) indicator derived from the standard Bollinger Bands indicator. Bollinger Bands are a volatility indicator which creates a band of three lines 什麼是布林通道(Bollinger Band) which are plotted in relation to a security's price. The Middle Line is typically a 20 Day Simple Moving Average. The 什麼是布林通道(Bollinger Band) Upper and Lower Bands are typically 2 standard deviations above and below the SMA (Middle Line). Bollinger Bands Width serve as a way to quantitatively measure the width between the Upper and Lower Bands. BBW can be used to identify trading signals in some instances.
The creator of Bollinger Bands, John Bollinger, introduced Bollinger Bands Width in 2010 almost 3 decades after the introduction of his Bollinger Bands.
Bollinger Bands Width (BBW) uses the given calculation and outputs a Percentage Difference between the Upper Band and the Lower Band. This value is used to define the narrowness of the bands. What needs to be understood however is that a trader cannot simply look at the BBW value and determine if the Band is truly 什麼是布林通道(Bollinger Band) narrow or not. The significance of an instruments relative narrowness changes depending on the instrument or security in question. What is 什麼是布林通道(Bollinger Band) considered narrow for one security may not be for another. What is considered narrow for one security may even change within 什麼是布林通道(Bollinger Band) the scope of the same security depending on the timeframe. In order to accurately gauge the significance of a narrowing of the bands, a technical analyst will need to research past BBW fluctuations and price performance to increase trading accuracy.
What to 什麼是布林通道(Bollinger Band) look for
One of the most well-known theories in regards to Bollinger Bands is that volatility typically fluctuates between periods of 什麼是布林通道(Bollinger Band) expansion (Bands Widening) and contraction (Bands Narrowing). With this in mind, the major trading signal generated by Bollinger Bands Width is 什麼是布林通道(Bollinger Band) known as The Squeeze.
The Squeeze setup is very straightforward and consists of two steps:
- There is a period of 什麼是布林通道(Bollinger Band) low volatility. The means that the bands are narrow and price is moving relatively sideways.
- The low volatility period is followed by a surge in volatility and price breaks through the Upper Band or falls through the Lower Band signifying a change in the sideways movement and the beginning of a new directional trend.
In a Bullish BBW Squeeze
- BBW drops. (In the example below, the threshold is 6% however this changes from security to security and timeframe to timeframe)
- Price breaks through the Upper Band which starts a new upward trend. Volatility also increases.
In a Bearish BBW Squeeze
- BBW drops. (In the example below, the threshold is 9% however this changes from security to security and timeframe to timeframe).
- Price falls below the Lower Band which starts a new downward trend. Volatility also increases.
Bollinger Bands Width (BBW) be quite a useful technical analysis tool for identifying "The Squeeze" which can result in some nice buying or selling signals. Of course the trader should 什麼是布林通道(Bollinger Band) always use caution. Sometimes the breakout after a Squeeze setup has an immediate pullback and the rally never happens. It takes 什麼是布林通道(Bollinger Band) a trader's better judgment to really determine if the breakout is a strong, legitimate one. That being said, when a strong uptrend or downtrend after a Squeeze does occur it provides a great opportunity for the prepared analyst or trader.
The time period to be used in calculating the SMA which creates the base for the Upper and Lower Bands. 20 days 什麼是布林通道(Bollinger Band) is the default.
Determines what data from each bar will be used in calculations. Close is the default.
The number of Standard Deviations away from the SMA that the Upper and Lower Bands should be. 2 is the default.
Bollinger Bands Width
Can toggle the visibility of Bollinger Bands Width as well as the visibility of a price line showing the actual current value of the Bollinger Bands Width. Can also select the BBW Line's color, line thickness and visual type (Line is the default).
Sets the number of decimal places to be left on the indicator's value before rounding up. The higher this number, the more decimal points will be on the indicator's value.
Bollinger Bands ® - indicator for MetaTrader 5
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Bollinger Bands ® technical indicator (BB) is similar to Envelopes. The only difference 什麼是布林通道(Bollinger Band) 什麼是布林通道(Bollinger Band) is that the bands of Envelopes are plotted a fixed distance (%) away from the moving average, while the Bollinger Bands are plotted a certain number of standard deviations away from it. Standard deviation is a measure of volatility, therefore Bollinger Bands 什麼是布林通道(Bollinger Band) adjust themselves to the market conditions. When the markets become more volatile, the bands widen and they contract during less volatile periods.
Bollinger Bands are usually plotted on the price chart, but they can be also added to the indicator chart. Just like in case of the Envelopes, the interpretation of the Bollinger Bands is based on the fact that the prices tend to remain in between the top and the bottom line of the bands. A distinctive feature of the Bollinger Band indicator is its variable width due to the volatility of prices. In periods of considerable price changes (i.e. of high volatility) 什麼是布林通道(Bollinger Band) the bands widen leaving a lot of room to the prices to move in. During standstill periods, or the periods of 什麼是布林通道(Bollinger Band) low volatility the band contracts keeping the prices within their limits.
The following traits are particular to the Bollinger Band:
- abrupt changes in prices tend to happen after the band has contracted due to decrease of volatility;
- if prices break through the upper band, a continuation of the current trend is to be expected;
- if the pikes and hollows outside the band are followed by pikes and hollows inside the band, a reverse of trend may occur;
- the price movement that has started from one of the band’s lines usually reaches the opposite one.
The last observation is useful for forecasting 什麼是布林通道(Bollinger Band) price guideposts.
Bollinger Band indicator
Bollinger bands are formed by three lines. The middle line (ML) is a usual Moving Average.
ML = SUM (CLOSE, N) / N = SMA (CLOSE, N)
The top line (TL) is the same as the middle line a certain number of standard deviations (D).
TL = ML + (D * StdDev)
The bottom line (BL) is the middle line shifted down by the same number of standard deviations.
BL = ML - (D * StdDev)
- SUM (. N) - sum over N periods;
- CLOSE - close price;
- N - number of periods used in calculation;
- SMA - Simple Moving Average;
- SQRT - square root;
- StdDev - standard deviation:
StdDev = SQRT (SUM ((CLOSE — 什麼是布林通道(Bollinger Band) SMA (CLOSE, N))^2, N)/N)
It is recommended to use 20-period Simple Moving Average as the middle line, and plot 什麼是布林通道(Bollinger Band) top and bottom lines two standard deviations away from it. Besides, moving averages of less than 10 periods are of little effect.