Bollinger-Bands für indische Aktien
In the end, both Apple and IBM did turn around and this proved that the strategy is correct. So, the more tools you have, the better you can adapt to the ever-changing market environment.
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In a different example, Yahoo broke the lower band on December 20, The strategy called for an immediate buy of the stock the next trading day.
Just like in the previous example, there was still selling pressure on the stock. While everyone else was selling, the strategy calls for a buy. That proved correct, as Yahoo soon turned around. On December 26, Yahoo again tested the lower band, but did not close below it.
This would be the last time that Yahoo tested the lower band as it marched upward toward the upper band. As we all know, every strategy has its drawbacks and this one is definitely no exception. In the following examples, we'll demonstrate the limitations of this strategy and what can happen when things do not work out as planned. When the strategy is incorrect, the bands are still broken and you'll find that the price continues its decline as it rides the band downward.
Unfortunately, the price does not rebound as quickly, which can result in significant losses. In the long run, the strategy is often correct, but most traders will not be able to withstand the declines that can occur before the correction. The selling pressure was clearly in oversold territory. The strategy called for a buy on the stock the next trading day. Like the previous examples, the next trading day was a down day; this one was a bit unusual in that the selling pressure caused the stock to go down heavily.
The selling continued well past the day the stock was purchased and the stock continued to close below the lower band for the next four trading days.
Finally, on March 5, the selling pressure was over and the stock turned around and headed back toward the middle band. Unfortunately, by this time the damage was done. The strategy calls for buying Apple shares on December The next day, the stock made a move to the downside. This is case where the selling continued in the face of clear oversold territory.
During the selloff there was no way to know when it would end. There are times, however, when the strategy is correct, but the selling pressure continues. During these conditions, there is no way of knowing when the selling pressure will end.
Therefore, a protection needs to be in place once the decision to buy has been made. The strategy correctly got us into that trade. Both Apple and IBM were different because they did not break the lower band and rebound. Instead, they succumbed to further selling pressure and rode the lower band down.
This can often be very costly. In the end, both Apple and IBM did turn around and this proved that the strategy is correct.
The best strategy to protect us from a trade that will continue to ride the band lower is to use stop-loss orders. The opposite situation, in which the bands are wider apart, means that the market volatility is very high. In this case traders should prepare for a decrease in volatility and eventually consider exiting a position.
The following chart shows a squeeze with a succeeding rise in price volatility. A breakout occurs when the price closes outside the upper or lower band.
Therefore, John Bollinger suggests using other direction-based indicators for entering a trade. The following chart shows a fake breakout:. Some traders also use a breakout for entering a trade. Because the bands act as support and resistance lines, a breakout of the price outside these bands is considered a potential trading possibility.
In the beginning of December , the price moved outside the upper band with a long bullish candlestick. To confirm the breakout, a trader should wait for a second signal, which in this case give the following candlestick patterns.
This is the first signal showing the dominance of buyers. The next period, forming a bullish long-shadow candlestick, and with a close just on the border of the upper band, confirms once more that an uptrend is possibly ahead. Now it is time to enter a long position. The pair trades the next few months close to the upper band, with a few fake breakouts, and touches quite often the middle band, i.
The position should be closed either when the price falls to the lower band, or the trend shows signs of exhaustion. This is a level where trader would consider exiting the position. Another popular strategy based on Bollinger Bands, is riding the bands. During powerful down and uptrends, the price tends to stick to the lower and upper bands, respectively.
This shows that there is still enough steam behind the trend, and that it will likely continue in the future. A price sticking to one of the bands, is therefore a major statistical event which happens in exceptional conditions , like changes in the currency fundamentals. After the price closed away from the band, traders should close the long position with a nice profit in the account. The upper and lower bands show the volatility of the price , because they are based on standard deviation calculations.
The breakout itself is not considered a trading signal , as it provides no clue about the direction or extent of the price movement. This material is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader.
The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Close alert Thanks for following this author! Close alert You've unfollowed this author. You won't receive any more email notifications from this author. Bollinger Bands consist of three parts: The middle band , which is a N-period simple moving average.
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