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should spring back toward a center of gravity after extending sharply in either direction. This axis
tends to support price from below and resist it from above during active markets. In flat rangebound
periods, price action commonly oscillates back and forth across the pivot until volatility triggers a
new directional impulse.
Bollinger Bands (BBs) focus analysis of central tendency in real-time. As markets evolve, this
powerful tool draws upper and lower channels that predict extremes based on price’s relationship to
the most recent action. To use the bands effectively, apply a central moving average that tunes into
the expected holding period. Choose this important value carefully. Longer averages will lead to
later signals, while shorter ones will generate whipsaws. Pick shorter settings for intraday charts
such as 5-minute and 60-minute bars. Swing traders can’t afford late information when playing in
this frantic time frame. Expand to longer averages for daily or weekly charts to uncover broad
market cycles and emerging trends.
Set standard deviation (std dev) parameters to regulate how far price will stretch before striking a
band. Most technical analysis sources advise 2 std dev as the common setting. Shorten this length to
speed up signals but face the same whipsaws encountered with moving average manipulation. Most
swing traders should start with the most popular parameters for each time frame and adjust them
to the volatility of their favorite markets. Price should rarely exceed upper or lower boundaries in
average trends when Bollinger Bands are set at 2 std dev. But parabolic rallies and selloffs can
exceed bands set all the way to 3 std dev and above.
Don’t try to find perfect settings. Learn how imperfect ones work and when they flash false signals.
Similar bars may repeatedly pop through certain bands but still offer valuable feedback on
impending reversals. Predictive BB patterns print on all charts regardless of inputs and reward entry
with great accuracy. When in doubt about which settings to use for a specific market, create a BB
ribbon by layering multiple deviation levels on a single chart. Then see how that market responds to
the bands through different trend phases.
Most charting programs default to the popular 20-bar, 2 std dev settings. Pull up this common view
frequently to eavesdrop on how the crowd views its positions. This standard BB promotes simple
tactics that align to common herd reactions. Enter fade positions when price strikes horizontal top or
bottom bands that hold firm after the collision. Look for bands to tighten around a dull market in
expectation of a sharp breakout move. In active markets, congestion often forms as price nears the
center band and persists until bars expand sharply through the barrier or reverse in a failure. Enter
positions in the direction of the expansion or place entry stops at both extremes of the
congestion. Consider new short sales when price pops more than 50% out of the top band and new
longs after the same violation of the bottom band.
Swing traders require faster signals than investors. Consider a 13-bar, 2 std dev setting for most
intraday charts. This more sensitive input captures trend activity and breakdown better than the 20-
bar. All BBs work best in combination with other moving averages placed over the bands. Add 5-
bar and 8-bar SMAs to create a 5-8-13 combination. This Fibonacci number set consistently picks
up major intraday swings and reversals. Use the 5-bar for S/R on dynamic trends, the 8-bar for
pullbacks, and the 13-bar to locate trend change and reversal.
Bollinger Bands identify subphases within the current trend. Price enters a bull phase when it rises
above the center band. That central axis now supports price on pullbacks. When crossed, price tends
to move all the way to the top band before any major reversal takes place. This pattern supports
long swing entry when confirmed by other landscape features. The center band becomes resistance
when price breaks below it. Odds favor price falling all the way to the bottom band when the central
pivot breaks. This pattern supports short swing entry when confirmed by other landscape features.
Bollinger Bands combine the sophistication of complex mathematics with the simplicity of pattern
recognition. A strong trend in either direction prints bar patterns that appear to cling to the top or
bottom band like curtain rungs. Often they display a series of small pullbacks that never reach the
center band before resuming the trend. These sharp moves may climax when more than 50% of the
price bar reaches outside the end of a band. This signals an overbought or oversold state that
triggers sharp resistance and pulls price back within its limits. But trade timing with this
phenomenon can be tricky. Very strong issues may overcome this strong central tendency for a
number of price bars before fading back into the boundaries.
Bollinger Bands add horsepower to analysis of multiple time frame events. Toggle from weekly
through intraday bands without changing any of the settings. This exercise reveals a 3D view with
excellent predictive power. It may even uncover hidden S/R and pinpoint reversals to within a
single price bar. A similar method builds a simultaneous three-chart display that tracks market
progress through different time frames. Apply Elder’s Triple Screen strategy with either method to
align entry to the relative bull/bear price positions within the bands.
Someday another Charles Dow or Edwards and Magee will come along to categorize the great
variety of band/price patterns and assign effective trading rules for them. Until then, apply these
simple band concepts to daily market preparation:
1. Location and direction determine trading phase:
• Upper vs. lower action: Location of price bars determines the strength of the current
phase. Price within the upper band signifies power while price within the lower band
signals weakness.
• Price direction: Direction of price within the band identifies convergence-divergence with
the current trend. Divergence prints when price rises within the lower band or falls within
the upper band. Convergence prints when price rises within the upper band or falls within
the lower band.
• Trend testing: The lower, center, and upper bands represent S/R for the trend. Reversal off
any band increases odds that price will expand in the reversed direction and return to the last
band crossed or touched.
2. Penetration through the center band increases directional momentum:
• Crossing from below center to above: Uptrend increase in strength. Observe directional
movement of the upper band as price approaches.
• Crossing from above center to below: Downtrend increase in weakness. Observe directional
movement of the lower band as price approaches.
3. Bands open in response to awakening trend:
• Climbing the ladder: If the angle of the upper band rises in response to approaching price,
expect a series of upward price bars, each riding higher along the top band. This is an
uptrend in progress.
• The slippery slope: If the angle of the lower band falls in response to approaching price,
expect a series of downward price bars, each pushing lower along the bottom band. This is a
downtrend in progress.
4. Bands flatten in response to awakening trend:
• Head in ceiling: If the angle of the upper band flattens in response to approaching price,
expect price bars to pierce the band and reverse. This will likely end an upward swing and
start a downward one. But watch if price pulls back slowly while the band then opens. This
will signal an impending breakout.
• Foot in floor: If the angle of the lower band flattens in response to approaching price, expect
price bars to pierce the band and reverse. This will likely end a downward swing and start an
upward one. But watch if price pulls back slowly while the band then opens. This will signal
an impending breakdown.
Bollinger Bands define natural extremes in trend development. As bands are hit, price often
bounces backward until sufficient strength can push the band out of the way. Congestion will likely
develop just below the top band or above the bottom band if the overall pattern supports increasing
momentum. This will continue until the band turns and opens away from price, indicating that
resistance has been overcome. Price may then eject into a sustainable trend and cling to the band’s
edge. But keep in mind that ultimate movement will depend on all S/R boundaries and not just
those associated with BBs.

The 5-minute Lucent landscape prints common Bollinger Band patterns while classic S/R converges at important
band turning points: 1. Head in ceiling reversal appears at short-term double top. 2. Price action retests the high
while upper band turns away from price to signal an impending breakout. 3. The new uptrend climbs the ladder
into another top. 4. Price rises into a sharply declining band that signals another downward swing and break of the
2-day trendline. 5. Price action retests the low in a descending triangle while the lower band turns away from
price to signal an impending breakdown. 6. The new downtrend slides down the slippery slope.