Before we jump into the strategies, look at the below infographic titled '15 Things to Know about Bollinger Bands'.
That bit of information is incredibly valuable. It is even more powerful if combined with other tools such as other indicators for confirmation.
Using the SPY as a surrogate so we can calculate volume indicators, we find that both day Intraday Intensity and Accumulation Distribution are quite positive, suggesting that if a breakout were to occur here it would be to the upside. That stands in marked contrast to our more cautious approach to the market as a whole, so we will be monitoring this set-up quite carefully Bollinger On Bollinger Bands.
John Bollinger developed Bollinger Bands in the early s and since their introduction 30 years ago they have become one of the most widely used technical indicators worldwide.
Learn how to use Bollinger Bands from the man who developed them. The default parameters 20,2 are based on the default parameters for Bollinger Bands. These can be changed accordingly. According to Bollinger, these stocks could be starting new up swings. This scan is just a starting point. Further refinement and analysis are required. According to Bollinger, these stocks could be starting new down swings. In order to use StockCharts.
A new decline starts with a Squeeze and subsequent break below the lower band. BandWidth dipped below 10 to put the Squeeze play on in mid-June. Even though this level seems high, it is actually quite low for ALK.
With the subsequent surge above the upper band, the stock broke out to trigger an extended advance. A horizontal line was added to the indicator window. This line marks 8, which is deemed relatively low based on the historical range. The BandWidth indicator alerted traders to be ready for a move in mid-August. The stock obliged with a surge above the upper band and continued higher throughout September. The advance stalled in late September and BandWidth narrowed again in October.
Notice how BandWidth declined below the lows set in August and then flattened out. The subsequent break below the lower Bollinger Band triggered a bearish signal in late October. The Squeeze can also be applied to weekly charts or longer timeframes. Volatility and BandWidth are typically higher on the weekly timeframe than a daily timeframe. This makes sense because larger price movements can be expected over longer timeframes. As the consolidation narrowed and a triangle formed, Bollinger Bands contracted and BandWidth dipped below 10 in January Notice how BandWidth remained at low levels as the consolidation extended.
A bullish signal triggered with the breakout in July BandWidth also rose as prices moved sharply in one direction and Bollinger Bands widened. Chart 5 shows Honeywell HON with an extended trading range in the area. There was a move to the upper band in May, but no breakout for a signal.