Bollinger band

[Benjam1n]

I read that when a price hits it's lower or higher band it's a sign of being under/over sold. So does anyone scalp some pips each time a price hits the upper or lower band? Is there any other info you could give me on this?

Thanks.

 

[bbmac]

Price tends to stick to lower or upper bands when trending but this does not neccessarilly mean that it is oversold or overbought...whatever those trems actually mean. Ie another way of defining overbought/oversold would be that the market may be beginning to trend...ie price tends to stick to the upper/lower bands when it starts to trend, - after all a trend is a deviation of an average which is what the bands show (a standard deviation from a moving average.)

20/2 has arguably become the default setting of the bollinger bands indy in modern tech analysis...the upper and lower bands on this setting on most t/f's contain 90-95% of price action. It follows therefore that at some point price may 'snap' back inside the upper or lower band if deviating otside them. A whole reversal candle closing outside the upper or lower bol combibed with osc extr's or reg div on the same and/or higher t/f's at potential supp/res can give you an edge in the way you describe....but in a trending market you are generally better to get with the money flow than against it.

G/L

I read that when a price hits it's lower or higher band it's a sign of being under/over sold. So does anyone scalp some pips each time a price hits the upper or lower band? Is there any other info you could give me on this?

Thanks.

 

[Futures Hunter]

Summary : upper or lower band is like support & resistance, it doesn't mean under/over sold. If you notice the upper or lower band form a straight lines for a couple of days, and price broke up or down these level, breakout has occur!

 

[bbmac]

Sorry but that is potentially terribly misleading advice, howsoever well intentioned...I refer you to John Bollinger's website that explain's the originator's thoughts on them and how he uses them.

Bollinger Bands are probably the most badly named tech indicator in the history of tech indicators, for they are and would be better named Volatility bands....ie an upper and lower band plotted at x standard deviations away from a moving average.

When price hits the upper or lower band and the opposing band is going in the opposite direction it means that the volatility of the market has hit however many standard deviations of the mean the bands are calculated from, standard deviation being one measure of volatility. Potential supoport or resistance is not implied in this event. When both bands are moving in the same direction and price is generally hugging one of the bands it means that price is remaining deviated from it's mean and is probably trending up or down on that t/f. This can occur after an increase in volatility such as decsribed and signalled by the bands, above.

Flat/horizontal bands generally mean that the market is consolidating and this will probably be reflcted in price action...the greater the consolidation/squeeze - the greater the chance of a breakout one way or the other.

G/L

Summary : upper or lower band is like support & resistance, it doesn't mean under/over sold. If you notice the upper or lower band form a straight lines for a couple of days, and price broke up or down these level, breakout has occur!

 

[Splitlink]

Summary : upper or lower band is like support & resistance, it doesn't mean under/over sold. If you notice the upper or lower band form a straight lines for a couple of days, and price broke up or down these level, breakout has occur!

Would it not be truer to say that at a level of two deviations the price is getting to be an unusual distance from its average and that a return to that average is probable? The problem is What is the average doing? Is it starting to trend or is it flat or weak? In a trending market the entry points would be near the average and going with the trend. An entry under those conditions towards the average would be going against the trend. An entry near the Bollinger, with the average flattish might see a bounce with the price, eventually, touching the other Bollinger line.

Also, what average are you going to use?

There is a lot of work to be done before one understands Bollingers but they are worth the time and trouble

 

[bbmac]

I think what some fail to give sufficient weight to is that the upper and lower bands are calculated to x standard deviations from a moving average not an average, so it is re-calculated with every candle close (if indeed set to the close) - ie the bands are dynamic and move along with price whereas a standard deviation of an average does not...This is essentially why it is dangerous and too simplistic to suggest that price will revert to the average when the upper or lower band is hit.

I do agree with Splitlink above that they are useful and indeed I make use if them in the repeating set-ups that are part of my own trading edge.

G/L

 

[Splitlink]

I am not sure whether I agree with the distinction between an average and a moving average. An average is an average of "something" and if that "something" moves then the average is going to move, too. Where I think that a Bollinger Band is misleading is that the line that draws the channel is history, like indicators are. The relevant point is the present bar and that is getting historic with every second that passes.

Everything in TA is confusing and, therefore, misleading if taken as Gospel. The point of Bollingers is to make an "observation" for the trader to use in his assessment of what a price is going to do.

It's like waiting for a bus that is usually punctual but is ,now, three minutes late. "It must come now, at any second. I'll wait" says one waiting passenger. The other decides to walk. Trading is like that.

 

[scose-no-doubt]

Bbmac nailed it really.

 

[cfor]

I read that when a price hits it's lower or higher band it's a sign of being under/over sold. So does anyone scalp some pips each time a price hits the upper or lower band? Is there any other info you could give me on this?

Thanks.

I've just come across this strategy posted on the FXSense website: FXSense - The #1 Tool for Forex Traders, it uses Bollinger Bands combined with Fibonacci Levels. I haven't really studied it in depth, but it looks pretty good. Would be interested in getting other people's views...

 

[Splitlink]

Good link, thanks! I have not seen that one before.

I do not think it a good idea to get too complicaated with anything. I use BBs as a sign that the price is overbought/sold. Perhaps, there is other information there but it depends on the average that one uses, too.

It is a good idea, though.

 

[cfor]

Hmmm, ok, thank you. I might follow it. Do you mean the average of the BB? From what I can see on the picture, it is 20,2. This also comes up as a default setting on other chart packages I've seen. Maybe this is the optimal setting?

 

[the hare]

Maybe this is the optimal setting?

Thats why the broker you are trading against suggested those setting

I wouldnt get too hung up on the period length or the deviation, I'd re read bbmacs earlier post, and then ask what exactly are bollinger bands indicating.

Price doesnt move up or down because of a bollinger band, the bollinger bands move up and down because of price.

There's no such thing in TA as an optimal setting, its only optimal with respect to some other bunch of other constraints that you have imposed. Think about it as if someone had asked you to measure the height of a horse. Maybe you you measure it in feet and inches, or metres, or hands, or you express its height as a multiple of the length of your ****... its irrelevant.

This is the good bit. I could take your bollinger indicator, modify the code so it gives you completely crazy non standard values (and at the extreme make your version give buy signals when the rest of the world sees selll signals) and you could still use it, and still make money.

If you get hung up on this optimal value nonsense then I suggest reading Evidence Based Technical Analysis by David Aaronson, or better still Fooled By Randomness by the god like Nicolas Talib should sort out the problem

 

[Splitlink]

Hmmm, ok, thank you. I might follow it. Do you mean the average of the BB? From what I can see on the picture, it is 20,2. This also comes up as a default setting on other chart packages I've seen. Maybe this is the optimal setting?

This is very much trial and error of what you like but remember that the lower the average, the more volatile and difficult it will be to assess --the BBs, too. Some instruments may work better with one average than another.

Also, a Bollinger Band may only need a touch and it will bounce, sharply, into a reversal and the trend may be starting in the opposite direction, or it may be the continuation of a trend which, already, commenced at the opposite band. So they are not Gospel but thay can be useful so try them out with demos, or small stakes.

 

[cfor]

Thanks guys, I guess what you are saying Splitlink, "the lower the average, the more volatile and difficult it will be to assess" is pretty much the same as the argument on the site that the shorter the timeframe the more volatile the price will be? Daily seems to work well. Anyway, I'm going off on a tangent, thank you both for your advice.

 

[Splitlink]

Thanks guys, I guess what you are saying Splitlink, "the lower the average, the more volatile and difficult it will be to assess" is pretty much the same as the argument on the site that the shorter the timeframe the more volatile the price will be? Daily seems to work well. Anyway, I'm going off on a tangent, thank you both for your advice.

That's about it

but!

The larger the time frame the more risk you have to allot to the trade. There can be some expensive experiments and errors made there. I am risk averse. It is nothing to be proud of--- I am used to close stops and sometimes that requires a dedication to the trade that I, at my age, do not need. but it is a very difficult habit to get out of.

For instance, I may go with the intention of taking a risk of 25 points but, when it gets to 12 my finger is on the close button. It's a terrible habit to break and I refuse to use a shrink!. It's a mental block, though, that I find difficult to cure.

 

[cfor]

That's about it

but!

The larger the time frame the more risk you have to allot to the trade. There can be some expensive experiments and errors made there. I am risk averse. It is nothing to be proud of--- I am used to close stops and sometimes that requires a dedication to the trade that I, at my age, do not need. but it is a very difficult habit to get out of.

For instance, I may go with the intention of taking a risk of 25 points but, when it gets to 12 my finger is on the close button. It's a terrible habit to break and I refuse to use a shrink!. It's a mental block, though, that I find difficult to cure.

Ha ha! Isn't that why having a predetermined entry and stop (as in the FXSense strategy) is a good idea?

 

[cfor]

Also, it seems to be quite a small stop on a large (daily) timeframe....

 

[Splitlink]

Ha ha! Isn't that why having a predetermined entry and stop (as in the FXSense strategy) is a good idea?

Maybe, I don't care to comment on that. It is, after all, only one trade and people who post winning trades tend to post the ones likely to back their ideas and not the failures. Nevertheless, if you can successfully predict, most times, a risk of just 28 pips on a daily chart I would like to know about your progress.

Good trading.

 

[cfor]

I'll let you know ;-)

 

[Joules MM1]

.... the market is consolidating and this will probably be reflected in price action...

true......often the bit between point A (applying the bands)and point B (looking at the bands) is actually where all the real information reside.....