This is one area I don't understand. Could you please tell me what the significance of the bollingers is, as I've failed to be able to use them for the purpose of predicting short/medium-term longs hitherto. Thanks. Paul Perryman.
Just a few points to add to what John rightly said above:
BBs do not generate buy or sell signals alone
It's best to use them with another indicator(s)..RSI or MACD are first to come to mind..I wouldn't use both of them at the same time however, as they rely on the same inputs..OBV or MFI might also be considered...because RSI- OBV and MFI rely on differet inputs and measure different things, they can be used together...
The reason why it's best to use the BBs with other indicator(s) is becuase when price touches one of them, it doesn't neccessarily mean only one thing, instead it could indicate 2 things: trends continues or the other way round..other indicators help us to establish which way the price might be heading next..regarding overbought and oversold conditions RSI is quite good and it could give us an idea as to which way is the trend..
Just as an example of my interpretation: if the price touches the upper BB and the RSI is below 70 heading up, I'd iterpret it as the trend will continue...again if the price touches the lower BB and the RSI is above 30, I'd interpret as the trend will continue..
Sell signal is when the price touches the upper BB and RSI is above 70 (meaning overbought)..
A few more of such combinations can be listed..just mentioned those to give an idea...
Still as John said, not cast in stone, so take care..
Many thanks to both of you for your valued insights on this point. As ever, the creative interpretation is that which adds value to the quality of one's charting and I will see if I can make use of this additional tool in future. Paul.
I can only subscribe to what written above. For what it can help. I use Bollinger bands always in conjunction with RSI and volume. Although I look at OBV on a regular basis, I personally found that you want to look at the volume on the last few days only, particulalry when RSI is higher than average for that stock, to see if there is enough pressure to keep momentum.
I also found that the rate of change on 5 days is a good match for the Bollinger bands.