Bollinger Band Measurements

Discussion in 'Trading' started by traderlady, Aug 31, 2001.

  1. Yesterday I had already taken a 200 share short position in PEP at a price of $47.52 (1044 est). Then I happened to receive an email from an experienced trader. He commented that the range in the Bollinger Bands for PEP was too small for much gain much.

    Since this trader brought up the subject of Bollinger Band range measurement, I have been measuring BBs, using various time frames. As a result, these questions have arisen:

    1) Rather than measuring the current range, which might be in a BB squeeze, do you measure the largest range on the time frame you are working with?

    2) If price is on the lower band, do you measure just up to the mid-band moving average, since that may be resistance?

    3) If you are watching a five-minute intraday chart, and timing entries & exits from a one-minute chart, which time frame do you use for your range measurement? Would you look to a daily or a 60-minute chart?

    4) Now I am also wondering if some software packages (maybe Real Tick) automatically does this kind of measurement

    My short position in PEP worked out okay -- I was pleased to make a small profit – even after $39.95 in commissions at Fidelity. (Yes, I am considering moving my account.)
  2. m_c_a98


    I'd recommend going to the bookstore and "BUYING" a book called "the master swing trader" by Alan Farley.
    This book talks about Bollinger Bands quite a bit.
  3. Turok


    >I'd recommend going to the bookstore and
    >browsing through a book called "the master
    >swing trader" by Alan Farley.

    If you find it of value, I also recommend going one step further and buying it in fairness to the author.

  4. Thanks for the suggestion, "mc a98" & Turok!

    Actually, my copy of Farley's "Master Swing Trader" is sitting right here next to my computer -- complete with a coffee-with-cream-stain left by some browser at Borders! Thus, I got a discount on it (smile).

    Pages 10 & 11 contains 17 statements about ranges. I won't quote any of them here, but will say Farley is a great abstract thinker. Thus, one has to really ponder what he is saying.

    In addition, he discusses Bollinger Bands throughout the book and I have read most or all of those sections, I believe (but may be wrong). No where did I see any mention of actual BB measurements in numbers.

    Anyone, please let me know if I have missed such discussions.
  5. gh1


    You might even read John's book (i suggest buying it too)
    "Bollinger on Bollinger Bands"

    From your post it is very hard for me to understand how you are using the bands.

    I suggest that you stay in one time frame -- if you trade off of 5 minute bars, use bands constructed off of 5 minute bars.

    The bands are a measure in themselves -- so i don't get what you mean when you ask:

    ""1) Rather than measuring the current range, which might be in a BB squeeze, do you measure the largest range on the time frame you are working with?

    2) If price is on the lower band, do you measure just up to the mid-band moving average, since that may be resistance? "" (endquote)

    The bands are an adaptive measure of volatility around a central tendency. The adaptive nature of them is what makes them unique and, for some, useful trading tools.

    I suggest you clearly define just what your set-ups, using the BB's, are -- sounds like you entered the trade for reasons other than the price relationship to BB's

    John has a web site:

    You may find it useful too.

  6. Babak


    as far as I know Alan uses the standard numbers (inputs) for the BB calculations he uses:

    20 day simple moving avg + 2 std deviations
  7. Hi "gh1" & Babak…

    Actually, I haven’t gone to the source by reading "Bollinger on Bollinger Bands". I understand it’s a good book at a small price. Thanks for mentioning it.

    Please allow me to explain my setup a bit further:

    Yesterday I was watching a 5-minute chart using 13bar/2SD Bollinger Bands. My short was @ $47.60 from a limit order @ $47.52 (which was favorable). The $47.60 fill was at the top of the 13-bar Bollinger Band with two Standard Deviations.

    Yes, I was trading off the bands – something I always do.

    The reason for my choice of bands was because Farley had recommended this setup, as a possibility, in "The Master Swing Trader": 1) watch the 5-minute chart. 2) Check the 60-minute when something interesting happens on the five-minute. 3) Time entries & exits on the 1-minute.

    I did all of this, & fortunately it worked out okay. (This was also my first short trade ever!)

    But, after this trade I read the email from an experienced trader explained in my initial post. Maybe I misunderstood him, but he suggested measuring the width of the Bollinger Bands to decide whether or not to take a trade. And, this is what I was not sure how to do.

    If I measure the bands when they squeeze before a possible big move, the measurement would say, don’t take the trade.

    If I measure the bands at their widest expansion at a time of high volatility, then the measurement would, perhaps, seem to be too optimistic.

    I hope this explains why I posed these questions & also clarifies the questions.
  8. I am not sure but I think FARLEY also uses 13 MA BB for intraday charts.

    His explanation on how he uses them is quite interesting, notably regarding the BB opening or staying flat when price moves to the band.

    But seriously do you guys use BB a lot?, I think the concept of the bands acting as resistance is bullsh*t. From my readings and experience , the only thing it implies IMHO is that when it stays above or below the upper/lower BB for 3 bars + it's getting quite overbought/oversold, and I won't enter in the direction of the trend. But I am not going to short either yet. Also BB contraction alerts you of the possibility of an imminent breakout. I never heard of any technique that measures the range of the BB to derive a" price target".

    IMO, all those indicators, BB, stoch, MACD etc you name it since deriving all from price action only give clues or confirmation (with a lag and thus many false signals) of what the price is doing. Why would BB be resistance or support, it's derived from price and price does what it wants to do!
  9. m_c_a98



    I agree. I don't use BB,
    Support and Resistence from the price chart works best IMHO
    I like indicators for a general guide..
  10. Kicking,

    I went back & checked. On my PEP short yesterday, three five-minute bars were PARTIALLY above the 13bar/2SD. Was this enough to say overbought?

    The reason I took the trade was to increase my learning by starting to understand the process of shorting. I was just ready to do one!

    I fade the direction, too, but I wish to know more about your statement: But I am not going to short either yet. "

    So, 3 bars above 2SDs says overbought. Then, you wait for a reversal pattern before you short?

    Please expand, if you feel like it.
    #10     Aug 31, 2001