A Technique for Better Bollinger Bands® Analysis
Bollinger Bands are by far one of the best indicators for analysis of sideways price action in stocks, finding compression patterns early before High Frequency Trading price surges and providing visual assistance with Spatial Pattern Recognition Skills™ (SPRS) for Beginner Traders. However, using the Bollinger Bandwidth indicator is a better choice for Swing and Day Traders.
Chart example #1 below clearly has two common problems.
Spatial Pattern Recognition Skills are critical for stock traders. These skills take time and practice to hone to an intuitive level that Professional Traders take for granted. Bollinger Bands are popular with beginner and novice traders as the bands make it far easier to see the compression of a stock price trend, which is a common pattern prior to a huge breakout move by High Frequency Traders (HFTs) or Professional Traders.
However, there are two problems with Bollinger Bands that can cause missed trading opportunities or impede the learning curve for a beginner or novice with Spatial Pattern Recognition Skills.
The first missed trading opportunities occur when momentum speculative energy triggers sudden initial runs. High Frequency Trader action moves price so suddenly with large point gains that Bollinger Bands applied to candlesticks do not compress.
Secondly, by having Bollinger Bands on the candlesticks themselves, it is much more difficult to identify the New Western Candlestick Entry Signals™ that offer excellent pre-HFT entries. These entries allow the Swing Trader to enter and ride with the HFT action rather than chasing them.
Here is a solution that incorporates another of the Bollinger Bands Indicators called Bollinger Bandwidth for a better analysis.
Clarity using the Bollinger Bandwidth indicator allows the New Western Candlestick Entry Signals to be more easily read, which helps traders see the compression after a big sudden move.
Martha Stokes CMT
TechniTrader technical analysis using TC2000 charts, courtesy of Worden Bros.
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
Copyright ©2017–2023 Decisions Unlimited, Inc. dba TechniTrader. All rights reserved.
TechniTrader is also a registered trademark of Decisions Unlimited, Inc.