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technical_indicators:bollinger_bands [2019/06/24 19:39] 127.0.0.1 external edit |
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| - | * Middle Band = 20-day simple moving average (SMA) | + | * Middle Line = 20-day simple moving average (SMA) |
| * Upper Band = 20-day SMA + (20-day standard deviation of price x 2) | * Upper Band = 20-day SMA + (20-day standard deviation of price x 2) | ||
| * Lower Band = 20-day SMA - (20-day standard deviation of price x 2) | * Lower Band = 20-day SMA - (20-day standard deviation of price x 2) | ||
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| {{:technical_indicators:bollinger_bands:cs-bbands.xls?linkonly|Click here to download this spreadsheet example.}} | {{:technical_indicators:bollinger_bands:cs-bbands.xls?linkonly|Click here to download this spreadsheet example.}} | ||
| - | **Bollinger Bands consist of a middle band with two outer bands.** The middle band is a [[:technical_indicators:moving_averages|simple moving average]] that is usually set at 20 periods. A simple moving average is used because the standard deviation formula also uses a simple moving average. The look-back period for the standard deviation is the same as for the simple moving average. The outer bands are usually set 2 standard deviations above and below the middle band. | + | **Bollinger Bands consist of a middle line with two outer bands.** The middle line is a [[:technical_indicators:moving_averages|simple moving average]] that is usually set at 20 periods. A simple moving average is used because the standard deviation formula also uses a simple moving average. The look-back period for the standard deviation is the same as for the simple moving average. The outer bands are usually set 2 standard deviations above and below the middle line. |
| {{:technical_indicators:bollinger_bands:bbs-1-spyexam.png|Bollinger Bands - Chart 1}} | {{:technical_indicators:bollinger_bands:bbs-1-spyexam.png|Bollinger Bands - Chart 1}} | ||
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| ===== Signal: W-Bottoms ===== | ===== Signal: W-Bottoms ===== | ||
| - | W-Bottoms were part of Arthur Merrill's work that identified 16 patterns with a basic W shape. Bollinger uses these various W patterns with Bollinger Bands to identify W-Bottoms, which form in a downtrends and contain two reaction lows. In particular, Bollinger looks for W-Bottoms where the second low is lower than the first but holds above the lower band. There are four steps to confirm a W-Bottom with Bollinger Bands. First, a reaction low forms. This low is usually, but not always, below the lower band. Second, there is a bounce towards the middle band. Third, there is a new price low in the security. This low holds **above** the lower band. The ability to hold above the lower band on the test shows less weakness on the last decline. Fourth, the pattern is confirmed with a strong move off the second low and a resistance break. | + | W-Bottoms were part of Arthur Merrill's work that identified 16 patterns with a basic W shape. Bollinger uses these various W patterns with Bollinger Bands to identify W-Bottoms, which form in a downtrends and contain two reaction lows. In particular, Bollinger looks for W-Bottoms where the second low is lower than the first but holds above the lower band. There are four steps to confirm a W-Bottom with Bollinger Bands. First, a reaction low forms. This low is usually, but not always, below the lower band. Second, there is a bounce towards the middle line. Third, there is a new price low in the security. This low holds **above** the lower band. The ability to hold above the lower band on the test shows less weakness on the last decline. Fourth, the pattern is confirmed with a strong move off the second low and a resistance break. |
| {{:technical_indicators:bollinger_bands:bbs-2-jwnwbot.png|Bollinger Bands - Chart 2}} | {{:technical_indicators:bollinger_bands:bbs-2-jwnwbot.png|Bollinger Bands - Chart 2}} | ||
| - | Chart 2 shows Nordstrom (JWN) with a W-Bottom in January-February 2010. First, the stock formed a reaction low in January (black arrow) and broke below the lower band. Second, there was a bounce back above the middle band. Third, the stock moved below its January low and held above the lower band. Even though the 5-Feb spike low broke the lower band, the signal is not affected since, like Bollinger Bands, it is calculated using closing prices. Fourth, the stock surged with expanding volume in late February and broke above the early February high. Chart 3 shows Sandisk with a smaller W-Bottom in July-August 2009. | + | Chart 2 shows Nordstrom (JWN) with a W-Bottom in January-February 2010. First, the stock formed a reaction low in January (black arrow) and broke below the lower band. Second, there was a bounce back above the middle line. Third, the stock moved below its January low and held above the lower band. Even though the 5-Feb spike low broke the lower band, the signal is not affected since, like Bollinger Bands, it is calculated using closing prices. Fourth, the stock surged with expanding volume in late February and broke above the early February high. Chart 3 shows Sandisk with a smaller W-Bottom in July-August 2009. |
| {{:technical_indicators:bollinger_bands:bbs-3-sndkwbot.png|Bollinger Bands - Chart 3}} | {{:technical_indicators:bollinger_bands:bbs-3-sndkwbot.png|Bollinger Bands - Chart 3}} | ||
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| M-Tops were also part of Arthur Merrill's work that identified 16 patterns with a basic M shape. Bollinger uses these various M patterns with Bollinger Bands to identify M-Tops, which are essentially the opposite of W-Bottoms. According to Bollinger, tops are usually more complicated and drawn out than bottoms. Double tops, head-and-shoulders patterns, and diamonds represent evolving tops. | M-Tops were also part of Arthur Merrill's work that identified 16 patterns with a basic M shape. Bollinger uses these various M patterns with Bollinger Bands to identify M-Tops, which are essentially the opposite of W-Bottoms. According to Bollinger, tops are usually more complicated and drawn out than bottoms. Double tops, head-and-shoulders patterns, and diamonds represent evolving tops. | ||
| - | In its most basic form, an M-Top is similar to a double top. However, the reaction highs are not always equal; the first high can be higher or lower than the second high. Bollinger suggests looking for signs of non-confirmation when a security is making new highs. A non-confirmation occurs with three steps. First, a security creates a reaction high above the upper band. Second, there is a pullback towards the middle band. Third, prices move above the prior high but fail to reach the upper band. This is a warning sign. The inability of the second reaction high to reach the upper band shows waning momentum, which can foreshadow a trend reversal. Final confirmation comes with a support break or bearish indicator signal. | + | In its most basic form, an M-Top is similar to a double top. However, the reaction highs are not always equal; the first high can be higher or lower than the second high. Bollinger suggests looking for signs of non-confirmation when a security is making new highs. A non-confirmation occurs with three steps. First, a security creates a reaction high above the upper band. Second, there is a pullback towards the middle line. Third, prices move above the prior high but fail to reach the upper band. This is a warning sign. The inability of the second reaction high to reach the upper band shows waning momentum, which can foreshadow a trend reversal. Final confirmation comes with a support break or bearish indicator signal. |
| {{:technical_indicators:bollinger_bands:bbs-4-xommtop.png|Bollinger Bands - Chart 4}} | {{:technical_indicators:bollinger_bands:bbs-4-xommtop.png|Bollinger Bands - Chart 4}} | ||
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| {{:technical_indicators:bollinger_bands:bbs-5-phmmtop.png|Bollinger Bands - Chart 5}} | {{:technical_indicators:bollinger_bands:bbs-5-phmmtop.png|Bollinger Bands - Chart 5}} | ||
| - | Chart 5 shows Pulte Homes (PHM) within an uptrend in July-August 2008. Price exceeded the upper band in early September to affirm the uptrend. After a pullback below the 20-day SMA (middle Bollinger Band), the stock moved to a higher high above 17. Despite this new high for the move, price did not exceed the upper band, which was a warning sign. The stock broke support a week later and MACD moved below its signal line. Notice that this M-top is more complex because there are lower reaction highs on either side of the peak (blue arrow). This evolving top formed a small head-and-shoulders pattern. | + | Chart 5 shows Pulte Homes (PHM) within an uptrend in July-August 2008. Price exceeded the upper band in early September to affirm the uptrend. After a pullback below the 20-day SMA (middle line of the Bollinger Band), the stock moved to a higher high above 17. Despite this new high for the move, price did not exceed the upper band, which was a warning sign. The stock broke support a week later and MACD moved below its signal line. Notice that this M-top is more complex because there are lower reaction highs on either side of the peak (blue arrow). This evolving top formed a small head-and-shoulders pattern. |
| ===== Signal: Walking the Bands ===== | ===== Signal: Walking the Bands ===== | ||
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| </code> | </code> | ||
| - | For more details on the syntax to use for Bollinger Band scans, please see our [[docs>scans:indicators#bollinger_bands|Scanning Indicator Reference]] in the Support Center. | + | For more details on the syntax to use for Bollinger Band scans, please see our [[https://support.stockcharts.com/doku.php?id=scans:indicators#bollinger_bands|Scanning Indicator Reference]] in the Support Center. |
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| ===== Additional Resources ===== | ===== Additional Resources ===== | ||
| ==== Stocks & Commodities Magazine Articles ==== | ==== Stocks & Commodities Magazine Articles ==== | ||