Bollinger on Bollinger bands (John Bollinger, 2001)

• Continuous advice doesn't work
• Keltner buy line + Keltner sell line = Keltner bands
• Keltner buy line: 10-day-moving-average typical price + 10-day moving average (high-low)
• Keltner sell line: 10-day-moving-average typical price - 10-day moving average (high-low)
• Bomar band
• Upper band = 85% of data above the average for the past 250 periods
• Middle band = 21-day moving average
• Lower band = 85% of data beneath the average for the past 250 periods.
• Bollinger Bands were born in 1983
• The key to Bollinger Bands is volatility
• BandWidth is most useful for identifying the Squeeze
• (Upper BB - lower BB)/middle BB
• Use the Squeeze as a setup
• Bollinger Bands can help clarify Ws
• Tops are more complex than bottoms; hence they are harder to diagnose
• 3 pushes to a high is a very common formation
• Low volatility begets high volatility and vice versa
• Avoid collinearity
• Volume indicator formulas
• One balance volume = volume + the sign of the change
• Volume-price trend = volume + percentage change
• Negative volume index = if volume falls, accumulate price change
• Positive volume index = if volume rises, accumulate price change
• Intraday intensity = (2 * close - high - low)/(high - low) * volume
• Accumulation distribution = (close - open)/(high - low) * volume
• MFI = 100 - 100 / (1 + positive price * volume sum / negative price * volume sum)
• VWMACD = 12-period volume-weighted average of the last - 26-period volume-weighted average of the last
• VWMACD signal line = 9-period exponential average VWMACD
• Normalising volume oscillators
• 10-day sum of [(close - open) / (high - low) * volume] / 10-day sum of volume
• Method II - combines price strength with indicator strength to forecast price
• Volume-weighted MACD could be substituted for MFI
• Buy when %b is greater than 0.8 and MFI is greater than 80
• Sell when %b is less than 0.2 and MFI is less than 20
• Buy strength and sell weakness
• The strength (threshold) required for both %b and the indicator can be varied
• The speed of the Parabolic also can be varied
• The length parameter for the Bollinger Bands could be adjusted
• Method III
• Buy setup: lower band tag and the oscillator positive
• Sell setup: upper band tag and oscillator negative
• Use MACD to calculate the breadth indicators
• Sell reversals outside the bands
• Normalised indicator formula
• (Indicator - indicator lower band) / (indicator upper band - indicator lower band)
• Basic rules
1. Bollinger Bands provide a relative definition of high and low
2. That relative definition can be used to compare price action and indicator action to arrive at rigorous buy and sell decisions
3. Appropriate indicators can be derived from momentum, volume, sentiment, open interest, intermarket data, etc.
4. Volatility and trend already have been deployed in the construction of Bollinger Bands, so their use for confirmation of price action is not recommended
5. The indicators used for confirmation should not be directly related to one another. Two indicators from the same category do not increase confirmation. Avoid collinearity
6. Bollinger Bands can be used to clarify pure price patterns such as M-type tops and W-type bottoms, momentum shifts, etc.
7. Price can, and does, walk up the upper Bollinger Band and down the lower Bollinger Band
8. Closes outside the Bollinger Bands can be continuation of Bollinger Bands in some very successful volatility-break-out systems
9. The default parameter of 20 periods for calculating the moving average and standard deviation and the default parameter of 2 standard deviations for the BandWidth are just that, defaults. The actual parameters needed for any given market or task may be different
10. The average deployed should not be the best one for crossover signals. Rather, it should be decriptive of the intermediate-term trend
11. If the average is lengthened, the number of standard deviations needs to be increased simulaneously - from 2 at 20 periods to 2.1 at 50 periods. Likewise, if the average is shortened, the number of standard deviations should be reduced - from 2 at 20 periods to 1.9 at 10 periods
12. Bollinger Bands are based upon a simple moving average. This is because a simple moving average is used in the standard deviation calculation and we wish to be logically consistent
13. Be careful about making statistical assumptions based on the use of the standard deviation calculation in the construction of the bands. The sample size in most deployments of Bollinger Bands is too small for statistical significance, and the distributions involved are rarely normal
14. Indicators can be normalised with %b, eliminating fixed thresholds in the process
15. Finally, tags of the bands are just that - tags, not signals. A tag of the upper Bollinger Band is not in and of itself a sell signal. A tag of the lower Bollinger Band is not in and of itself a buy signal