# Bollinger Bands



## JetDollars (31 July 2004)

The use of BB to trade:

http://www.coveredcalls.com/bollinger-rsi.htm

Any other strategy that you guys used?


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## Joe Blow (20 October 2004)

I like using Bollinger bands as an indicator to establish when a stock is overbought or oversold.

Can be useful for picking entry and exit points for shorter term trades.


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## wayneL (21 October 2004)

Here is an interesting reversal system that incorporates BB's.

http://www.enthios.com/charts/universal.htm

The author uses it on S&P eminis but I'm sure it would work on anything.

Cheers


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## Daveo85 (14 March 2005)

Joe Blow said:
			
		

> I like using Bollinger bands as an indicator to establish when a stock is overbought or oversold.
> 
> Can be useful for picking entry and exit points for shorter term trades.



I Find the Bollinger bands are a great indicator when a stock is moving in a sideways trend, as MACD is better for a stock that is trending up.


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## salz (30 April 2005)

So how do you use the MACD? How do you read it?


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## Aden_1 (25 May 2005)

Great links. Thanks.


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## ob1kenobi (26 May 2005)

A fan of Bollinger Bands. When doing a T/A on a stock I'll call up the price chart with volume for 1 year, ytd and if I need to establish a clearer picture then 5 years. I then put Bollinger Bands around the historical price. Bollinger Bands work on Standard deviations and are 2.5 SD from the moving average. According to the glossary on etrade:


> Bollinger Bands:
> Bollinger Bands are a type of envelope (or trading band) plotted at standard deviation levels above and below a moving average. Because standard deviation measures volatility, the bands widen during volatile markets and contract during calmer periods.
> 
> When viewing this indicator:
> ...





I therefore use Bollinger Bands to get an idea of price direction and volatility. I then plot this against an EMA of 30 or 120 days. I also like to compare this same data against the ASX200 or All Ords or the sector indices. I then call up the RSI chart to determine the proximity of the current price to its neutral position. If the RSI indicates the stock is overbought, I'll research to find out why and the same if it is oversold. Finally I'll call up the Money Flow chart to determine if the stock is being treated in a bearish or bullish manner. I generally do this before checking the fundamentals. If everything in each graph adds up to a strong signal to buy, I'll check the fundamentals. If the fundamentals are within my expectations and in line with the charts, I buy! Simple!


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## mime (26 May 2005)

I've tried a few methods.

Right now I'm trying the buy cheap, profitable companies and hold them for ever strat.


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## It's Snake Pliskin (30 November 2006)

Are there any guys or gals using these bands to some capacity?


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## coyotte (30 November 2006)

I use  the bands  mainly when a SP appears to be topping or bottoming

Set @ 2* 20 simple

When price moves outside the band ,I take it as a probable reversle warning .

Also as key points to place trend line points


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## It's Snake Pliskin (30 November 2006)

coyotte said:
			
		

> I use  the bands  mainly when a SP appears to be topping or bottoming
> 
> Set @ 2* 20 simple
> 
> ...




I am interested in your settings Coyotte.

Why simple and @2? MA of 20 understood.

Why not weighted and 2.5 for example?


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## SevenFX (30 November 2006)

Nick Radge said:
			
		

> Snake,
> HERE is a fully disclosed trading system using BB that I discussed back in 2001. I still use a variant of this today.




Ohhh gees Nick Radge,

Your link only promotes the front of your website, unless one wants to suscribe or register email addrerss into your database... 
	

	
	
		
		

		
			





.


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## It's Snake Pliskin (30 November 2006)

Nick Radge said:
			
		

> Snake,
> HERE is a fully disclosed trading system using BB that I discussed back in 2001. I still use a variant of this today.




Hello Nick thank you for your post. What is it listed under or called? Or maybe you could post it here to make it easier for all. 

I am experimenting with an *entry* using bollingers.


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## Nick Radge (30 November 2006)

tekman,
give me some credit mate. The gate is used to keep knuckle heads out.

Snake,
Its 4-pages long and written in 2001. I can post the start of it when I get some time.


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## Nick Radge (30 November 2006)

PART 1

posted 31-01-2001 04:35 PM                    
--------------------------------------------------------------------------------
Most people look at Bollinger Bands (BB) as an envelope type indicator that represents o/bought and o/sold levels. Much like Stochastics, the BB's can be used differently and as you'll find out, very profitably. Again our emphasis is on "mechanical" whereby the system makes the decisions and there is no input, especially emotional, from you the trader.
I would like to point out that this method is actually a publicly available system. I will not name it, I do not own it and are therefore not breaking copyright laws. Some of you may recognize it and perhaps that this version is totally incorrect.

Moving along, here's the definition of BB's:

The Bollinger Bands indicator calculates a simple arithmetic average of prices, specified by the input Price, from each of the most recent number of bars specified by the input Length. This indicator also calculates the standard deviation in those prices for the same number of bars. An upper band is plotted a specified number of standard deviations above this average and a lower band is plotted a specified number of standard deviations below the average. The average is not plotted. Bollinger Bands combine the trend identifying aspects of a moving average with a dynamic factor, each market’s own volatility, to plot an envelope. The distance between the bands is, therefore, a reflection of volatility. During sideways periods, prices reaching the bands may indicate overbought or oversold conditions. Strong movement up through the upper band or down through the lower band may indicate the beginning of a trend.

The idea of our system is again to indentify longer term trends, much the same as the Bang For $$ System we have already looked at. This system will only make a few trades per year in any given stock and will hopefully show a high risk/reward ratio with a large average trade and smaller commissions.


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## Nick Radge (30 November 2006)

PART 2

posted 31-01-2001 04:52 PM                    
--------------------------------------------------------------------------------
Here is a typical example of the BB. Notice how it "seems" to move from one extreme to the other hence the use as an o/bought and o/sold indicator.


Most charting packages offer BB as a standard indicator. The default standard deviation of the bands is 2 which is what we will be using for our purposes.






We wish to use the bands as "breakout" levels - not o/bought or o/sold. The width of the bands is determined by the length of the average which is being used. The longer the length, the wider the bands and so forth. We are looking for a longer term trend, so will use a longer term average. Inline with the Bang For $$ system, we will revert to our 80 day length.

So, the parameter setting for the BB is 80 and the bands will then represent 2 standard deviations around this level.

The long entry will be a close OUTSIDE the upper band. Once the market closes outside, we simply buy on the next open. Here's the same NAB chart with the 80 MA and the close outside the upper band.


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## Nick Radge (30 November 2006)

PART 3

posted 31-01-2001 04:58 PM                    
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Like any robust system, the whole process should be simple, easy to understand and is only limited to your own imagination. It should also backtest and work across a variety of markets, not just one or two. 
The exit for this method is also very straight forward. We simply exit when the market retraces back through the 80 MA. This exit should be an intra-day stop, not stop on close.


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## Nick Radge (30 November 2006)

PART 4

Here's the coding for TradeStation:
*********************************************

Inputs: Length(80), StdDevDn(2), StdDevUp(2), BarsOver(2),PositionBasis(True), Amount(1000);
Variables: BBBot(0),BBTop(0);


BBTop = BollingerBand(Close, Length, StdDevUp);

{Long Entry}
If Close > BBTop Then
Buy ("++") Next Bar at market;

{Long Exit}
Exitlong at average(close,length) stop;

If PositionBasis Then
SetStopPosition
Else
SetStopContract;

SetStopLoss(Amount);


********************************************

The simple logic is: when the market closes above the upper BB, then enter long next day on open. If prices retrace, exit the long at the 80 MA. A $1000 hard dollar stop is used if the 80 MA is too far away. We allocate $10,000 to each trade.

Looking back at our NAB chart, here'e how the system acts with the $10k allocation. Remember TradeStation can auto select how many sharesz to buy basis the $10k.


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## Nick Radge (30 November 2006)

Part 5
posted 01-02-2001 12:18 PM                    
--------------------------------------------------------------------------------
Here's the equity curves for each of the 10 stocks selected. I have selected just the main names going back to 1986:







And here's the combined equity curve:






We could have easily included some more spec stocks, and in the real world we would have. This system will not generate that many signals at any given time, so it would pay handsomely to watch a larger selection.


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## coyotte (30 November 2006)

It's Snake Pliskin said:
			
		

> I am interested in your settings Coyotte.
> 
> Why simple and @2? MA of 20 understood.
> 
> Why not weighted and 2.5 for example?




They are the settings recommended by Bollinger on his web site -- along with a explaination  why

Try these settings with a 5 min chart -- very reveling !


Cheers


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## coyotte (30 November 2006)

Check out BLD daily with these setting -- notice what is happening when the lower band is breached .
As Bollinger states when the SP  hits the 20 ma , thats the median price -- according to Bollinger SP will always gravitate to this MA, as with most methods it is not suitable for all stocks though -- but if you find a stock it works with, then it can be a powerful indicator .

I know it,s a lagging indicator and blah , blah, blah --- but contary to a lot of opinions on this forum it only shows imo that different stocks are traded with different methods and one of the keys is to find that 


Cheers


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## It's Snake Pliskin (1 December 2006)

Nick Radge said:
			
		

> tekman,
> give me some credit mate. The gate is used to keep knuckle heads out.
> 
> Snake,
> Its 4-pages long and written in 2001. I can post the start of it when I get some time.




Thanks Nick,   it is much appreciated. We know you are busy and anything you post is appreciated by many.

regards
Snake


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## It's Snake Pliskin (1 December 2006)

coyotte said:
			
		

> Check out BLD daily with these setting -- notice what is happening when the lower band is breached .
> As Bollinger states when the SP  hits the 20 ma , thats the median price -- according to Bollinger SP will always gravitate to this MA, as with most methods it is not suitable for all stocks though -- but if you find a stock it works with, then it can be a powerful indicator .
> 
> I know it,s a lagging indicator and blah , blah, blah --- but contary to a lot of opinions on this forum it only shows imo that different stocks are traded with different methods and one of the keys is to find that
> ...




Coyotte,

I see what you mean regarding finding what works with a stock or market's character. I have noticed some signals using bollingers that could enhance my entries. Nicks strategy is totally different to what I am looking at but it is interesting for longer term holdings.

Regarding BLD: 
If you look at the 27th of Oct to the 3rd of Nov: buy and sell signals using price action and volume. Note the volume and price divergence. The rabbit MACD indicator is still tanking to the south pole. Beyond the 3rd, price is consolidating. (hindsight yes)

Snake


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## stevo (1 December 2006)

I use Nick's approach for entries combined with volume and momentum. 

On weekly charts, a close above the top bollinger band can trigger a buy signal. Testing on weekly timeframes with ASX stocks shows that this approach combined with a suitable exit easily outperforms the traditional overbought / oversold approach.

Plot some weekly charts with a 20 period 1.5 SD bollinger band (or similar parameters) to get a feel for it. Trail a stop and you have the start of a trading system - see below. Note - I don't trade the system shown.




I posted this on my blog also - www.drawdown.blogspot.com
Stevo


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## It's Snake Pliskin (3 December 2006)

Nick,



> The long entry will be a close OUTSIDE the upper band. Once the market closes outside, we simply buy on the next open.




A simple entry and a robust system. Reading this post of yours has helped me think about something clearly.

Snake :bounce:


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## It's Snake Pliskin (3 December 2006)

stevo said:
			
		

> I use Nick's approach for entries combined with volume and momentum.
> 
> On weekly charts, a close above the top bollinger band can trigger a buy signal. Testing on weekly timeframes with ASX stocks shows that this approach combined with a suitable exit easily outperforms the traditional overbought / oversold approach.
> 
> ...




Stevo,

Your post has contributed to my clear thoughts too. 
Snake:bounce:


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## tech/a (3 December 2006)

Stevo.

That stop the RED line on your chart.
What is it?

It doesnt appear to trigger from a cross, is it triggered from a downturn??


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## stevo (4 December 2006)

Tech
The exit is triggered only if the close is below the line, not the low. 

The line is just a lowest low style stop - LLV( L, 2) or something similar. I ratchet it up only and have to check if it has been crossed using  C< ref(stop, -1) or something like that.  If you just use LLV(L, 2) then the line drops when there is a lower low, but I don't allow the stop to drop unless the close breatches it.

Hope that makes sense. I can post the AB code if you want. I am not trading with this style of stop.

Stevo


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## professor_frink (4 December 2006)

stevo,
A little while ago I was trying to do something similar, but couldn't quite get it to work- would love for you to post the code(if the offer extends to others of course  )


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## wavepicker (4 December 2006)

Have looked at BB's in detail before. IMO a complete waste of time. The upper and lower bands that are calculated "x" Std deviations from a MA are useless  because the MA itself is lagging the price data by half the span of the average. That is why the price data hugs or even penetrates the upper or lower band for long periods of time. What type of overbought/oversold measure is this?? In many instances completely useless. Only price is king.

The only way to use BB's succesfully IMO is by modifying them such that the MA selected is in phase with the price data. This means finding the dominant cycle first and then plotting the MA correctly on the chart.

Cheers


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## stevo (4 December 2006)

professor,
A little off topic but it could be teamed with a bollinger breakout strategy.

```
StopLB = Param( "StopLB", 3, 1, 10, 1);

RawExit = LLV( L, StopLB) ; 

// Lowest low STOP - Racheted
initial= RawExit;
stop[0] = Close[0];
for( i = 1 ; i < BarCount; i++)
{ 
 if( Close[i] > stop[i-1]) 
 { 
  stop[i] = Max( initial[i], stop[i-1] ); 
 }
 else { stop[i] = initial[i]; }
}
Plot(stop, "LLV Stop", 4, 1);
```

I am not using this exit strategy in live trading at the moment, just doing some testing. Use at your own risk. You can also vary the code to make an ATR trailing stop.


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## professor_frink (4 December 2006)

Cheers stevo.
Appreciate it


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