How to Use Bollinger Bands with Quantity Indicators
Bollinger Bands are an outstanding indicator for analyzing sideways patterns. The bands ability to expand and contract revealing the amplitude of price is a critical factor for accurately identifying breakout action before price moves up or down.
Use Bollinger Bands topping action to determine that the sideways pattern is actually a topping pattern.
However determining the direction price will take out of the breakout is determined not by Bollinger Bands, but by quantity indicators that reveal whether large and giant lots are accumulating or rotating during the sideways action.
Another key factor in identifying sideways platform Bollinger Bands topping action is that the bands will contract during the sideways pattern, then price will hold below the center line of the bands and contract.
There is often a fake-out run, which is the final assumption by many smaller lot traders that the breakout will go to the upside.
This is seen in the chart with tiny white candles running up with common gaps, the telltale pattern of Retail Traders trading systems.
Martha Stokes CMT
TechniTrader technical analysis using StockCharts charts, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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