Articles
Identifying Budding Trends with Bollinger Bands
by John Forman - Dec 28, 2005
7.2 (from 19 ratings)
You can see from the following chart that the low BWI reading in September matched one from earlier in the year before a nice upswing in USD/JPY. It was also close to where the indicator got prior to the fall in the market late in 2004.
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In the examples above, the bottom end of the BWI range was 1%-2%. For USD/JPY and some other markets such as the S&P, on a daily basis, readings that low are significant. In other markets, however, the scale is different. Look at Crude Oil, for example.
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During the 12 months between August 2004 and August 2005, the lower bound was closer to 10%. That is reflective of how much more volatile Crude Oil prices were in that span than was true for other markets.
There are also differences in timeframe. Take a look at the monthly USD/JPY chart below to see how this can be the case.
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Notice that BWI bottomed out around 10%, significantly above the 2% area seen on the daily chart. This, of course, is to be expected given the larger price moves which take place in that timeframe. The point, though, is that the process remains the same – look for a market situation in which BWI has reached a relatively low level in historic comparison, regardless of the timeframe in question.
Author
John Forman
John Forman is a Professional Forex Analyst working for Thomson Reuters, a book author and a former Content Editor for Trade2Win.
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