Bollinger Bands

Celticheart Investor

A beginner's guide to trading and investing

Having looked at some examples of candlestick charts 
it is obvious that alone they are not always conclusive enough (something which seems to sit uncomfortably with shareholders that want clear direction), which is why we use other tools to supplement these charts to help make sense of what is going on. 

This blog is not meant to be an in-depth analysis of any individual company so my apologies to those that took it that way, I was simply trying to show an example of how, sometimes, the charts do not tell us enough.

Moving on, the first additional tool that is used to complement candlesticks is referred to as "Bollinger Bands" or BBs for short, so what exactly are they?

"Bollinger Bands" is a technical analysis tool devised by John Bollinger in the early 1980s and trademarked by him in 2011.

There are in fact three bands, the upper middle and lower bands. The middle band which is a simple moving average (usually set at increments of 20) which tracks the intermediate trend and the upper and lower bands track the overall volatility of the share price. 

If the BBs are wide apart then the trading is pretty volatile but when they are close together this shows that the sp is becoming more stable. This can often help, in conjunction with the chart patterns themselves to give a more accurate indication of where the share price is going.

I believe this is a good example of how the BBs close up when market sentiment turns in favour of the share in question.

How Bollinger bands are interpreted varies depending on the individual's trading strategy.  Some traders buy when price touches the lower Bollinger Band and exit when price touches the moving average in the center of the bands. Other traders buy when price breaks above the upper Bollinger Band or sell when price falls below the lower Bollinger

As I said at the beginning, BBs are a great tool to use in conjunction with candelstick charting to add confirmation to trends. For a more detailed look at Bollinger bands check out the links below

http://en.wikipedia.org/wiki/Bollinger_Bands

http://www.bollingeronbollingerbands.com/chart/main.php

http://www.bollingerbands.com/

Next time:  Moving Averages

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.