BollingerBands

[columbus]

"The theory behind Bollinger Bands is that, in a normal distribution data set,
68% of data should fall within one standard deviation and that roughly 95%
should fall within two standard deviations. So 95% of the price should fall
within the 2-width standard deviation, which is within the upper and lower band.

Bollinger bands are often used to forecast reversals in rangebound markets.
When the price is close to the upper band, the market is more likely to be in
overbought condition, and is likely to reverse. The same holds for the lower
band condition."

The keyword is RANGEBOUND markets.


"Technical Analysis can overload the brain and result in ANALSIS PARALYSIS"

 

[prasadam]

Hello columbus,

the key word in this theory you have mentioned is NORMAL DISTRIBUTION of data.

now, can we say prices follow a normal distribution? I don't think so.
If any body thinks it does, then good for him. and let him tweak the bands by 0.1 here and 0.2 there.

For me, BB, just like other patterns ( WW, H&S, Double top etc) is giving good visual presentation of a particular set up being formed and giving good profits. so, why should I tweak it with a half point here half point there as if it is going to make hell lot of diff.

Any tweak I undertake should give a more beautiful presentation and more favourable RRR, like say 20,3. the occurance of the piercing of bands will be very rare. but, when that happens the returns will be fabulous. somebody in this thread, I think its AShPaul ( not sure) who apart from Savant, was using this tweak.





cheers.

prasad.

 

[columbus]

Hello columbus,

the key word in this theory you have mentioned is NORMAL DISTRIBUTION of data.

now, can we say prices follow a normal distribution? I don't think so.
If any body thinks it does, then good for him. and let him tweak the bands by 0.1 here and 0.2 there.

For me, BB, just like other patterns ( WW, H&S, Double top etc) is giving good visual presentation of a particular set up being formed and giving good profits. so, why should I tweak it with a half point here half point there as if it is going to make hell lot of diff.

Any tweak I undertake should give a more beautiful presentation and more favourable RRR, like say 20,3. the occurance of the piercing of bands will be very rare. but, when that happens the returns will be fabulous. somebody in this thread, I think its AShPaul ( not sure) who apart from Savant, was using this tweak.





cheers.

prasad.

Stock data does not follow the Normal Distribution pattern.

distributed and the statitical rules you normally expect to hold
may not hold.

From : Bollinger on bollinger bands by Bollinger

In fact when Bollinger developed this method ,he was not so sure
that it would come to so prominence.Though stock data doesn't
follow NORMAL distribution ,still Bollinger bands are popular.

 

[columbus]

CONGRATS SavantGarde !!!!!
from : me &
Mr.Bollinger

 

[bunny]

Image: http://i25.tinypic.com/a2yx6b.gif

When the price is close to the upper band, the market is more likely to be in overbought condition, and is likely to reverse. The same holds for the lower
band condition."

The keyword is RANGEBOUND markets.

"Technical Analysis can overload the brain and result in ANALSIS PARALYSIS"

I would like to add something to this:
On many occasions, there is a sudden increase in the price, and the prices overflows the upper BB. If we ignore the word "rangebound(or trading range)", one is more likely to think that the price will reverse its direction in the next sessions. However, we find that the price remains above the upper BB for next few (about 3-6) trading session after which it forms a minor low and again continues the uptrend. Meanwhile, in those 4-6 sessions, BB has also widened to accommodate the price movement.

A question one may ask: How come BB lag in widening?
Answer: BB used SMA. SMA(and all other moving averages, or other systems that use these) are lagging indicators, so BB inherits lag to some extent.

So the next question is: How to identify whether it the birth of a new uptrend or an overbought condition in trading range? There may be few methods you may already know, but I commonly use the StochRSI (14 periods). If the StochRSI goes above 70 , I consider it the birth of a new uptrend.

For ex: Please see the attached daily chart on Zee Entertainment Enterprises Ltd. (505537) after closing of 17 July 09 (170709) session. In the previous session(160709), it had gained enormously and was very near to the upper BB. But in the next session, it pierced the upper BB and again gained enormously. Commonly, the value of ADX is used to decide if the stock is trending or range bound. But somehow, ADX remained below 25 even after 2nd day of handsome gain.


Please share your views.

 

[jshankar_2002]

Hi,

Bollinger bands are good for range bound market. Once the market started trending, none of the indicators are giving correct picture. May be moving average is good. Bollinger band can be used to identify double bottom and double top well.

 

[bunny]

Hi,

Bollinger bands are good for range bound market. Once the market started trending, none of the indicators are giving correct picture. May be moving average is good. Bollinger band can be used to identify double bottom and double top well.

Hi, once the market has started trending, I prefer candlestick charts!

 

[prasadam]

Stock data does not follow the Normal Distribution pattern.


From : Bollinger on bollinger bands by Bollinger

In fact when Bollinger developed this method ,he was not so sure
that it would come to so prominence.Though stock data doesn't
follow NORMAL distribution ,still Bollinger bands are popular.

Exactly columbus.

my point is, don't see it as a statistical tool, and try to tweak it by over optimization. stick to known settings 9,2 or 20,2 or 20,3.

as you rightly said in the earlier post.

"Technical Analysis can overload the brain and result in ANALSIS PARALYSIS"
and try to avoid it.

see it as price pattern, enjoy its beauty and profits. that's it.

cheers.

 

[prasadam]

I would like to add something to this:

For ex: Please see the attached daily chart on Zee Entertainment Enterprises Ltd. (505537) after closing of 17 July 09 (170709) session. In the previous session(160709), it had gained enormously and was very near to the upper BB. But in the next session, it pierced the upper BB and again gained enormously. Commonly, the value of ADX is used to decide if the stock is trending or range bound. But somehow, ADX remained below 25 even after 2nd day of handsome gain.


Please share your views.

I am no expert of these indicators. but, I would like to put in my views on the Zee Chart

1) stochRSI is in over bought zone.

2) ADX is below 25. infact below 20.

3) BB grazing is happening.


Now, we should wait to see what will happen on the next day.

If

1) stochRSI remains in overbought zone,

2) ADX moves to 25+.

3) another grazing.

then we can be confident of the uptrend and we should go long above this day's high.

If

1) stochRSI remains in overbought zone.

2) ADX is still below 25.

3) BB piercing or an inside bar of Red.

the next day go short below the low of this bar.

cheers

prasad.

 

[Shreenath]

Bollinger Bands and Keltner Channels

Hello everyone,
John Bollinger came up with this back in the 90s. But before that Keltner Channels have been long around and still used successfully by many traders.

I tend to switch to Bollinger Bands from Keltner Channels(S&P emini; not familiar with Nifty Fifty yet!!) say after a trend day where you can often expect consolidation. Typically you can see back and forth movement of prices and contained well within the upper and lower bands.

I will paste this from Linda Raschke's website and highlight a few parts in case anyone is interested to experiment with Keltner Channels.

What are Keltner Channels?

Keltner Channels are a form of trading bands plotted directly on top of a price chart, as opposed to beneath the price chart as in the case of an oscillator or volume. The bands are based on an ATR function centered around a moving average. We use a value of 2.5 ATRs added to and subtracted from a 20-period exponential moving average to create our bands.

What is the difference between Keltner Channels and Bollinger Bands?

Bollinger Bands are based on a standard deviation function. Very often, you will see times where the market is moving HIGHER but the lower Bollinger band is declining. This does not happen with Keltner channels. Though both are based on a volatility functions, Keltner Channels will maintain a more constant width than Bollinger Bands and thus we find them more pleasing to our eye. We also have had much better success in using range functions in our quantitative modeling as opposed to standard deviation functions, especially when creating short-term timing systems

Bollinger Band trades

we use 2.5 standard deviation bands centered around a 20 period moving average to make trades on the day following a trend day. we do these trades in the morning session only. the concept behind this is that a push to the upper or lower band will setup a countertrend trade. the objective is a push back to the moving average. no stops were used in our testing, we just used an exit of whenever the trade hit the moving average or end of day in the worse possible scenario.


Caution: I'm not familiar with Nifty fifty intraday and daily moves yet. So, please spend enough time experimenting with this in simulation mode and see how if fits your style. All charting packages probably have this indicator available and you can most likely insert it onto any chart on any time frame.

I hope to hear from anyone interested in using it until I get familiar with the price action of Nifty..........


Hope this helps.
Thank you everyone.
Shreenath

BB(20,2) on 3min and 5min timeframes are presented.
Upto 1400 hrs almost there was no candle in
bottom band.