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Chapter 12, Part I. Bollinger Bands. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 19, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Pipruit: And what is a major importance of this mind-cracking stuff?​
    Commander in Pips: Very simple. Think and tell me – if applying of 3 deviations suggests, that price will have to remain between the bands with 99% probability, and market occasionally touches upper or lower band, what does it tell us?
    Pipruit: Hm, if market should stay inside the band range with 99%, and currently it at the band, well, I don’t know, may be it should return back – in the range between the bands?​
    Commander in Pips: Definitely. But this demands some clarification – it’s not so simple.
    Pipruit: Cool! And why it’s a big deal about the MA period?​
    Commander in Pips: The MA period has the same sense as in a simple MA. The longer the MA period – the more smooth and lazy these lines, and the lines of BB. Also they will be wider. In fact, this is the same sensitivity to most recent price action – if you appoint a short period, then bands of BB will be very sensitive to price behavior and looks like kinked curves. If you appoint greater period – the line will be smoother and bands range will be wider.
    Pipruit: And why is it in that way?​
    Commander in Pips: Because there is a direct correlation between deviation value and the period. Just to keep it simple – the greater the period, the greater the volatility and deviation. So as deviation is greater – the distance between bands is also wider.
    Pipruit: Ok, you’ve said – "applying 2 deviations tells that price action will be inside the bands with probability 95%, 3 standard deviations – 99%. So, market will touch the bands very rarely." So, this tells us that the market will stay in this range in the future. So, it means that I know ahead of time the market’s range, does it?​
    Commander in Pips: No.
    Pipruit: ?​
     
    Hamza Samiullah and fran alvarez like this.
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