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Chapter 12, Part I. Bollinger Bands. Page 6

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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    3. Bollinger Bands squeeze

    This method works better when you give market more room for breathing by appointing just 2 deviations. Why? Because the market has 5 times greater probability to move outside the bands –5 % against ~ 1% when 3 deviations appointed.


    Chart #4 | AUD/USD Weekly, 20-period/2-deviations Bollinger Bands
    [​IMG]

    Here we can see that bands squeeze tightly and move almost parallel, range between them is stable. This is an early caution about potential breakout.

    Pipruit: Why in the world?
    Commander in Pips: Because, calm and very harmonic movement of bands and a tight range between them tell us, that volatility extremely stable. This couldn’t hold too long. Tight range between bands tells, in turn, that volatility is low. This combination tells, that market in extremely calm period - it couldn’t hold too long. Extreme calming is unnatural for markets and this could lead only to a single scenario – growth of volatility and breakout.

    Pipruit: Tremendous. Thanks, sir.
    Commander in Pips: So, when market shows a close below some band – this is the most probable direction of the breakout. Especially if it shows a number of closes in this direction. On our chart this is a close below the lower band – hence, we should expect breakout to the downside:


    Chart #5 | AUD/USD Weekly, 20-period/2-deviations Bollinger Bands
    [​IMG]

    Pipruit: Cool!
    Commander in Pips: Yes. Well in general this approach could be used to identify the starting of new strong move as soon as possible. But, as you understand, you will not see such action very often.

    Pipruit: And what time frames can we use for BB application?​

    Commander in Pips: The most common approach to this is to use not just one but two MAs on the chart.
    Pipruit: And what it could give us?​
     
    #1 Sive Morten, Dec 19, 2013
    Lasted edited by : Mar 15, 2016
    Hamza Samiullah and fran alvarez like this.
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