bollinger bands metastock user group 11/5/02 leland brode [email protected]
TRANSCRIPT
Bollinger Bands - Outline
History Construction of Bollinger Bands Using Bollinger Bands “Bandwidth” and “%b” Building New Indicators with
Bollinger Bands
History of Envelopes
“Twin-Line Chart” by LeDoux – 1960 Upper band – line along monthly highs Lower band – line along monthly lows Buy when lower band exeeds upper band
“Ten Day Moving Average Rule” by Keltnur – 1960 Establish concept of typical price (hi + lo + cl / 3) Buy and Sell lines based on Moving Avg of above
Types of Envelopes
Trading Bands Lines above and below a central
tendency Envelopes
Lines above and below by a % Channels
Parallel lines above and below prices
Envelope Examples – “Envelope”- 2 Moving Averages, one shifted up, the other down- Sell when reach upper envelope, buy when reach lower
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10% Envelope
EnvelopeWAL MART STORES (55.0000, 57.0000, 54.6800, 56.4700, +0.40000)
Envelope Examples – “Price Channel”- Upper line is Highest High for n bars, Lowest Low for n bars- Indicate Support and Resistance lines
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4344454647484950515253545556575859606162636465
Price Channel - last 15 bars
Price ChannelWAL MART STORES (55.0000, 57.0000, 54.6800, 56.4700, +0.40000), Price Channel (58.0250), Price Channel (48.5500)
Envelope Examples – “Projection Bands”- Project Price over n bars forward ( completely contains prices )- Sell when reach upper band, buy when reach lower
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Projection Bands - 15 bars
Projection Bands 20 period
WMT, Proj Bands, Proj Bands
Envelope Examples – “Projections Bands”
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Projection Bands - 15 bars
Projection Bands 30 period
WMT, Proj Bands, Proj Bands
Envelope Examples – “Standard Error Bands”- Bands are Standard Error above and below linear regression- Measures volatility, use with “r-squared” indicator
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Standard Error Bands
Standard Error BandsWAL MART STORES (55.0000, 57.0000, 54.6800, 56.4700, +0.40000)
Bollinger Bands
John Bollinger – Financial News Network, “Market Technician” in 1980’s
Pioneered use of Standard Deviation for construction of price envelope in 1983
Bollinger Bands are: 20 bar moving average, Upper Band is 2 Standard Deviations above Mov Ave, Lower Band is 2 Standard Deviations below Mov Ave
Contains 89% of all prices Shows Volatilitiy
Envelope Examples – “Bollinger Bands”
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65WAL MART STORES (53.59000, 54.79000, 52.68000, 54.55000, +1.00000)
Using Bollinger Bands
“The Squeeze” Low volatility followed by break-out, higher volatility Lower volatility marks end of trend, Opposite Band
turns in at end of trend “Walk the Bands”
Indicates strong trend pullbacks to Moving Average
Sideways trend tag of upper, followed by tag of lower band, and visa
versa If cross Mov Ave, then will continue to Band
Using Bollinger Bands – The Squeeze, Walking the Bands
25 8April
15 22 29 6May
13 20 28 10June
17 24 1July
15 22 29 5 12August
19 26 3 16September
23 30 7 14October
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The Squeeze - narrow bands followed by breakout in mid-August
Walking the band
IBM (78.9000, 80.5000, 78.3200, 80.4000, +1.46000)
Using Bollinger Bands – Patterns
Relative “W”, “M” pattern
Becomes - relative
Buy
Band Tag
Using Bollinger Bands – Patterns
Relative “W”, “M” pattern
Becomes - relative
Sell
Band Tag
Using Bollinger Bands – Use with other indicators
Confirm with other indicators Bollinger Bands are a “price” indicator Use Volume indicators
Volume only: On Balance Volume Volume Trend
Volume & Price: Demand Index Money Flow PriceVolume Trend Accum Distribution Intraday Intensity Chaiken AD Oscillator Volume Weighted MACD ?
Bollinger Bands – with Money Flow Index (MFI)
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65Walmart (54.4100, 54.9300, 53.3000, 53.4200, -0.98000)
Declining MFI confirms downtrend
MFI
Using Bollinger Bands – “Bandwidth, %b”
Bandwidth Measures distance between upper and lower band Greater distance -> greater volatility, strong trend Use Bandwith to find “The Squeeze” Lesser distance -> lesser volatility, sideways
Bandwidth formula BBandTop(CLOSE, 20, S, 2) – BBandBot(CLOSE, 20, S, 2)
%b Measures position of price relative to Bottom and Top bands Range 0 to 1: 0 indicates bottom band tag, 1 indicates top
band tag, .5 indicates in the middle %b formula
(CLOSE – BBandBot(CLOSE, 20, S, 2)) / Fml(“BandWidth”)
Using Bollinger Bands – Bandwidth, %b
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135IBM (78.90000, 80.50000, 78.32000, 80.40000, +1.46000)
Bollinger Bands – Applied to indicators
Apply Bollinger Bands to MFI, RSI, etc Shows Range of Indicator (Standard Deviation)
%b of Indicator Shows Relative Highs and Lows of indicator instead
of Fixed Highs and Lows (80/20 Overbought/Oversold)
Bollinger Bands Applied to Indicators
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B Bands on MFIB Bands on MFI
B Bands on MFI
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135IBM (78.90000, 80.50000, 78.32000, 80.40000, +1.46000)
Bollinger Bands - %b Applied to Indicators
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27282930APPLIED MATERIAL (14.90000, 15.95000, 14.77000, 15.72000, +0.69000)
Bollinger Band – MetasStock Formulas
Bollinger Band Components BandWidth1: BBandTop(CLOSE, 20, S, 2) - BBandBot(CLOSE, 20, S,
2) %b: (CLOSE - BBandBot(CLOSE, 20, S, 2)) / Fml( "BandWidth1") Bollinger Bands applied to Indicators Money Flow Index BandWidthMFI: BBandTop(MFI(14), 20, S, 2) – BBandBot(MFI(14), 20,
S, 2) %bMFI: (MFI(17) – BBandBot(MFI(17), 20, S, 2)) / Fml(“BandWidthMFI”) Accum/Distribution BandWidthAD: BBandTop(AD(), 17, S, 2) – BBandBot(AD(), 17, S, 2) %bAD: (AD() – BBandBot(AD(), 17, S, 2)) / Fml(“BandWidthAD”) Chaiken AccumDistr Oscillator BandWidthADO: BBandTop(CO(), 20, S, 2) – BBandBot(CO(), 20, S, 2) %bADO: (ADO() – BBandBot(ADO(), 20, S, 2)) / Fml(“BandWidthADO”)
Intraday Momentum Index BandWidthIMI: BBandTop(IMI(17), 17, S, 2) –
BBandBot(IMI(17), 17, S, 2) %bIMI: (IMI(17) – BBandBot(IMI(17), 17, S, 2)) /
Fml(“BandWidthIMI”) Volume BandWidthVol: BBandTop(VOLUME, 27, S, 2) –
BBandBot(VOLUME, 27, S, 2) %bVol: (VOLUME – BBandBot(VOLUME, 27, S, 2)) /
Fml(“BandWidthVol”) RSI BandWidthRSI: BBandTop(RSI(CLOSE, 17), 17, S, 2) –
BBandBot(RSI(CLOSE, 17), S, 2) %bRSI: (RSI(CLOSE,17) – BBandBot(RSI, 17) 17, S, 2)) /
Fml(“BandWidthRSI”)
Generic BandWidth and %b BandWidth_20: BBandTop(p, 20, S, 2) – BBandBot(p, 20, S,
2)
%b_20: (p – BBandBot(p, 20, S, 2)) / Fml(“BandWidth_20”)
Bollinger Bands - Summary
•Provide Envelope for most of price action•Shows Volatility•“The Squeeze” – sharp moves occur after Squeeze•“Walking the Bands” – move outside band, continue trend•“M” and “W” Patterns – convert to Relative M, W, trend change•A move that originates at one band goes to the other band•A cross of Moving Avg continues to next band•Confirm with other indicators (Volume indicators)•Apply Bollinger Bands to other indicators
Bollinger Bands – Bibliography
•“Bollinger on Bollinger Bands”, John Bollinger•“Technical Analysis of the Financial Markets”, John Murphy•“Getting Started in Technical Analysis”, Jack Schwager•“Technical Analysis for the Trading Professional”, Constance Brown•“Technical Analysis from A to Z”, Steven Achelis