John Bollinger

John Bollinger is the president and founder of Bollinger Capital Management, investment management companies, provider based on technical analysis services to wealth management for private individuals, corporations, trusts and pension funds. Bollinger publishes Capital Growth Letter. For many years, John Bollinger was chief analyst of the national cable TV Financial News Network (FNN), dedicated to financial news. Currently, he continues to advocate with weekly analytical commentary on channel CNBC, the successor of FNN, and for many years was the chief market analyst at Financial News Network.

Background to the financial career of John Bollinger periodically appeared on his path of life from early childhood. In his book “Bollinger on the tapes (bands) Bollinger, the author describes it this way:” I first encountered the stock market when I was a child and inherited a few shares Fruhauf, a company that subsequently rolled down and rolled and finally , sunk into bankruptcy. The second time I ran into him in the late sixties, when he was a young man, when I worked at the Museum of the media, establishment, owned by three brothers, whose father was then a successful underwriter of high-tech shares.

Then the action of high-tech companies were in the very hot, and my head was hit by the overall impact. Not really knowing the details, I instinctively knew that something was wrong with it. And next time it happened in mid-1970 in the form of assessing damage to my mother so that she was in a bear market remained in their hands stock mutual funds. My last meeting was forming in the late 1970’s, when oil “was the inevitable rise to 50 or 100 dollars per barrel, and the subject of universal passions were the stocks of oil companies, particularly shares of small companies engaged in deep drilling for gas in places such how to Pool Adanarko in Oklahoma. Needless to say, that oil has fallen instead of rising, while shares of oil companies in general have collapsed, with many of the high-risk disappeared.

Should there was a better approach, and I have long been searching for him, but could not find. In the end, I had to create it. It is called a rational analysis (Rational Analysis). Rational analysis is a combination of technical analysis and fundamental analysis in a relative environment. A key tool for rational analysis – tapes (bands) Bollinger.

1. Bollinger bands combine the properties of such indicators as time, volume, open interest, the standard deviation, etc.

Line indicator Bollinger built as a strip along the curve moving average. The bandwidth is proportional to the standard deviation values of the price of a given order moving average for the investigated period of time

The upper band belt = average + 2 standard deviations
Average tape = 20-periodic moving average
Lower band = mean tape – 2 standard deviations

Standard deviation – a statistical calculation that measures how far the values are separated from the average – in this case, how far prices are scattered from 20-day moving average. Statistically 95% of values falling within two standard deviations from the mean value, which means that 95% of the price is between the upper and lower Bollinger bands.

2. Application of Bollinger Bands for Forex.

The essential difference between stock and currency trading is that forex is no volume. There is only price. It is important that the price confirmed its movement from the previous non-directional range. In this example, the penetration of the price of a narrow corridor is interpreted as a buy signal.

3. Interest indicator Bollinger Bands.

Dynamic momentum indicator. Default settings: Period MA20 (specifies the measuring period average) standard deviation of -2 (specifies the placement of the bands around the average). Identification of the trend reversal is also possible with a percentage indicator PB (BLG B%). Formula = (Closure, lower band) / (upper band, lower band). Useful feature of this indicator is the use of divergence.

4. Bollinger bands in the wave analysis.

Bollinger bands can help determine the calculation of waves Eliot. (Period 22, deviation = 1.85) and shifted ekspontsialnuyu moving average with the following values (period 8, offset = 8). The advantage of this method, you should not consider a wave of lower order.

5. System RSI – Bollinger.

Combining RSI and Bollinger Bands. A buy signal occurs when the RSI falls below nizhnetsy Bollinger band sell signal when the RSI rises above the upper Bollinger band. There are many signals against the trend, so you should add a filter: it is trend indicator MACD, if MACD> 0. then the trend is up, if MACD <0, then the trend is downward RSI levels are 80% and 20% are suitable only for ranges. In this example, the breakout price is treated as a narrow corridor.

6. Width and contraction bands.

Trading on the basis of volatility. All signals are similarities appear when the market calms down, volatility is reduced, there is the attraction to the price chart moving average. All the signals are convergence – is weak signals the continuation of the trend or consolidation of the market in anticipation of a new trend. The discrepancy between the lines Bollinger signals the strengthening of an existing trend, or start a new one. These areas are most interesting in terms of a transaction. If we have a disagreement with the lines Bollinger growth, confirming signals from the indicator MACD, false breakdown, there was a great opportunity to open a position at the beginning of a trend. This prior convergence, compression in a narrow range was preceded by a strong movement of new trends.

7. Inner days and Bollinger bands.

By definition, the price makes new highs in an uptrend and new lows in the downlink, and therefore it is bound to touch the band. With this in mind, from our filter is required to buy signals were generated only if the candle after the one that touched the Bollinger bands will not make new highs or lows. This type of candle usually known as “inside day”. The best time scale for the internal search days – daily charts, but this strategy can also be used on an hourly, weekly and monthly charts. Combination of internal days with Bollinger bands increases the probability that we guess the top or bottom once the price has reached extreme levels. As a rule, the greater the time scale, the less will receive the signal, but it will be more meaningful.

Candles and their patterns illustrate the psychology of the market in a given point in time. Specifically, the inner candle represents a period of low volatility. If the uptrend volatility starts to decline, while the market is not able to make a new high (as evidenced by a candle inside), then we can conclude that the strength decreases and there is a chance of reversal.

Conclusion.

Bollinger noted that its light does not completely accurate buy and sell signals based on price touching the edges of the strips, but they can determine the limits between which the price movement may be explored with additional indicators.

Bollinger bands are used, usually in combination with other indicators. Especially need to filter the above “walk” along the lines of the price. The most common choice of technical analysts – RSI (Relative Strength Index). John Bollinger recommends the RSI, allowing the use of indicators, MACD, Money Flow, or a balance of volume (a highly controversial light, and sharply criticized, in particular, Dr. Alexander Elder – known in Russia, the author of books and manuals for traders). The main purpose of the use of indicators – to filter the signals to the above-described “walking on the edge”. Often, when other indicator shows a change in trend, the price really should be in the middle or the opposite lines.

What changes most of the indicator will help to improve its effectiveness? The first – the number of periods in which volatility is calculated and the simple moving average. By default, this is – 20 days. The meaning of optimization of this value – to make the moving average line act as support and resistance, but only for the phase correction after the price highs or lows. Bollinger bands determine the relative highs and lows of the market. This definition can be used to compare price and indicator action to arrive at a decision about buying or selling.

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