The Bollinger Band

Discussion in 'Technical Analysis' started by padutrader, May 9, 2018.

  1. padutrader

    padutrader

    John Bollinger says that the bands indicate when a market is relatively high or low: if you see the chart below the market is a lot closer to the higher band so market is relatively high.
    If you see the context that makes sense.
    if you see the solid bear bar that makes sense.
    not only is BB saying market is relatively high you are getting confirmation from the market j7.png
     
    #41     May 10, 2018
  2. padutrader

    padutrader

    but if it is relatively high why is it not falling?
    closed shorts went long j8.png
     
    #42     May 10, 2018
  3. Excellent. Just wanted to make sure. As for technical vs non-technical, I've implemented some enormous systems on the commercial side and can tell you that "looking at the charts without indicators" isn't part of a multi-billion dollar investment portfolio strategy nor does it define a commercial hedging program.
     
    #43     May 10, 2018
  4. padutrader

    padutrader

    as i have mentioned before market does not always do what it is supposed to do,and not only should we be aware of this and accept it as correct we should be ready to trade it.
     
    #44     May 10, 2018
  5. padutrader

    padutrader

    so relatively high does not mean sell unless market confirms it j9.png
     
    #45     May 10, 2018
  6. Jeffro72

    Jeffro72

    Thanks for the explanation. Is the green line a standard regression curve?
     
    #46     May 10, 2018
  7. Jeffro72

    Jeffro72

    Bollinger Bands use standard deviation to indicate what is "normal" (using normal distribution). In my experience, this concept is too "rigid" in practice...and the fat tails effect is a side effect of that.

    So I'm going to give away a bit of information that I believe is quite valuable (and time and profit saving), even though it's only a few words: Let the market itself tell you what is "normal".

    You'll have to figure out and develop the rest on your own, as I did, which took me many thousands of hours of testing and insight.
     
    Last edited: May 10, 2018
    #47     May 10, 2018
  8. My pleasure. So just as a reference, the image is included here. The green line is the regression curve which is the middle Andersen Bands line. The red curve is a moving average which is the middle line of BB. The two vertical lines are the look-back evaluation period in calculating the regression and average values at the time where they intersect the vertical line on the right. This is shown by drawing the regression line (blue) and average (magenta).

    If you were to keep the same distance between the vertical lines and slide them backward you would see the blue line ending on the green line for each of the bars as well as the corresponding magenta line ending on the red line.

    The image shows that as you would slide these forward when price began transitioning higher, the average (red) was much slower to turn up than the regression curve (green).

    Consequently the price variance around the magenta line and between the vertical lines reflects what becomes standard deviation around the red line at the point where it intersects the right vertical line, which is the basis for Bollinger Bands. It only looks at volatility around the average without bias for direction.

    Andersen Bands also calculates volatility between the vertical lines. However, volatility is measuring dispersion around the blue regression line. This line is a "best fit" line, different than the average, it draws a line through the middle of the data (between the vertical lines) such that there is equal amount of dispersion above and below it. As a consequence, direction is accounted for and the volatility is thus measuring the quality of the regression line as a descriptor of price action. The tighter the bands the stronger the trend. At the same time Bollinger Bands would become rather wide because price is moving away from the average faster than the average is moving. Hope that helps.




    upload_2018-5-10_21-1-54.png
     
    #48     May 10, 2018
  9. Jeffro72

    Jeffro72

    Very nice description and very nice work. Many thanks for this.
     
    #49     May 10, 2018
  10. Thank you. My pleasure.
     
    #50     May 10, 2018