Bollinger Band Index Analysis and Application Rule

brief introduction

Bollinger Bands, commonly referred to as BOLL, was created by John Brin. The Bollinger Bands indicator uses statistical principles to determine the range of price fluctuations and potential future movements by calculating the standard deviation of prices and their confidence intervals. It uses wave bands to visually display safe highs and lows in prices, so it is often called Bollinger Bands. The upper and lower boundaries of the channel are not fixed, but adjust dynamically with price changes. The Bollinger Bands and the Mike MIKE are both path indicators, and prices usually fluctuate within the range of their upper and lower limits. The width of the channel changes with the price volatility: when the price rises and falls, the channel widens; when the price is in a narrow range of consolidation, the channel narrows.

The indicator is mainly composed of four lines: the upper rail line (UP), the middle rail line (MB), the lower rail line (DN) and the price line. Among them, the upper rail line is the connection of the UP value, which is often represented by yellow; the middle rail line is the connection of the MB value, which is often represented by white; the lower rail line is the connection of the DN value, which is often represented by purple; the price line is usually presented in the form of the US line, and the color is mostly light blue.

Calculation formula

Medium trajectory = N-day simple moving average

Upper rail line = middle rail line + twice the standard deviation

Lower rail line = middle rail line - twice the standard deviation

application rule

The relationship between upper, middle and lower rail lines

1. When the upper, middle, and lower tracks of the Bollinger Band run upward at the same time, it indicates that the price is strong and is expected to continue to rise in the short term. Traders can consider holding positions or looking for low buying opportunities.

2. When the upper, middle, and lower tracks of the Bollinger Band run down at the same time, it indicates that the price is vulnerable and may continue to decline in the short term. Traders should stay on the sidelines or consider bargain-hunting.

3. When the upper rail line of the Bollinger Line runs down, while the middle rail line and the lower rail line are still going up, it indicates that the price is in a consolidation trend. If it is in a long-term upward trend, it can be regarded as a strong consolidation on the way up. Traders can hold positions and wait or short-term dips to intervene; if it is in a long-term downward trend, it may be a weak consolidation on the way down. Traders should mainly hold currencies and wait or reduce positions on the way up.

4. It is rare for the upper rail line of the Bollinger Line to run upward, while the middle rail line and the lower rail line to run downward at the same time, and no detailed judgment will be made here.

5. When the upper, middle, and lower rail lines of the Bollinger Line are running horizontally and horizontally almost simultaneously, a comprehensive judgment needs to be made based on the specific stage of the price.

The relationship between American and Bollinger Bands

1. When the US line breaks through the medium rail line from below the Bollinger Line, it indicates that the price strength feature is emerging and may start to rise. Traders can consider the medium and long-term layout.

2. When the US line further breaks through the Bollinger line above the medium track, it indicates that the price strength has been established, and there may be a sharp rise in the short term. Traders should focus on holding or buying short-term.

3. After the US line breaks through the upper track, it continues to rise, and at the same time, the three-track direction of the Bollinger Line also rises, which means that the strong pattern continues, and the price still has room to rise in the short term. Traders can hold their positions firmly until the US line shows signs of turning downward and then pay attention to whether the trend changes.

4. When the US line starts to turn downward after running above the track for a period of time, once it falls below the Bollinger line, it often indicates that the short-term strong market may come to an end, and there is a risk of a sharp drop in the price in the short term. Traders should promptly consider short-term selling and leaving the market. This is particularly important for varieties with excessive short-term gains.

5. After the US line falls from the top and breaks the upper track, if the Bollinger Line three tracks also start to go down synchronously, it indicates that the short-term strong market is coming to an end, and the future market trend is not optimistic. Traders should take selling their holdings on rallies as their main strategy.

6. When the US line falls from the upper middle track and breaks the middle track, it usually means that the previous uptrend has come to an end, and a medium-term downtrend may form. Traders should consider selling at the middle line. If the Bollinger Line three tracks also go down at the same time, the signal is more confirmed.

7. The US line fell below the Bollinger line and continued to decline, indicating that the price is extremely weak. Traders should firmly hold the currency and wait and see to avoid buying easily.

8. After the US line has been running on the lower track for a period of time, if there are signs of a U-turn upwards, it indicates that the price may stop falling and stabilize in the short term. Traders can consider a small amount of dip-hunting tentative positions.

9. When the US line breaks through the lower track from below, it indicates that the short-term market may recover, and traders can participate in the short-term rebound in moderation.

10. The US line has been running above the middle rail line and rising simultaneously with the middle rail line, indicating that the price is in a strong upward process. As long as the US line does not fall below the middle rail, traders can consider holding it all the way.

11. The US line has been below the middle rail line, and it has been synchronized with the middle rail line, indicating that the price is in a weak downward process. Before the US line effectively breaks through the middle rail line, stable traders should stay on the sidelines.

The two major indicators of Bollinger Bands

1. Evaluation of% b indicators

Calculation formula

% B = (closing price - lower Bollinger price)/(upper Bollinger price - lower Bollinger price)

application rule

If the price breaks through the upper Bollinger Band, that is, falls above the upper rail, the% b indicator value is greater than 1, which is usually regarded as a sell signal.

If the price falls below the Bollinger's lower rail, that is, below the lower rail, the% b indicator value is less than 0, which is usually regarded as a buy signal.

2. Research on Bollinger Band Width

bandwidth amplification

The bandwidth amplification pattern often appears when the price is about to choose to break up after a long-term low sideways bottom. At this time, the upper and lower rail lines of the Bollinger Line expand sharply in the opposite direction, indicating that the strength of the bulls is increasing and the strength of the bears is exhausted, and the price may enter a short-term sharp rise stage. When observing such a pattern on a trading platform like Anzo Forex, its formation conditions usually include: First, the price needs to go through a long period of medium and low sideways consolidation. The longer the consolidation time and the narrower the initial channel, the greater the potential subsequent increase may be; second, the channel needs to be accompanied by obvious volume amplification when it starts to open. The establishment of this pattern is marked by the US line breaking through the upper rail line, and the price band breaking through the medium and long-term moving average. If traders can grasp it in time, they are expected to obtain considerable short-term gains.

bandwidth narrowing

When the bandwidth narrows after a short-term sharp rise in price, it often prompts to sell in time. The larger the previous increase and the wider the channel, the larger the subsequent adjustment may be. This pattern is confirmed by the fact that the upper rail of the price starts to turn downward and the price falls below the short-term moving average. Timely identification of this pattern can help lock in profits and avoid the risk of a large retracement.

When the bandwidth narrows after a long-term decline in prices, it may enter a long-term small consolidation and bottoming stage. At this time, the upper and lower tracks of the Bollinger Line are gradually approaching slightly, indicating that the long and short forces will tend to balance and the price will fall into a long-term sideways consolidation. Traders should stay on the sidelines, or consider a very small batch layout.

Pay attention to the main points

Although indicators such as KDJ and MACD can provide buy and sell signals through the dead fork of the golden fork, they are prone to failure or generate false signals during price consolidation. The Bollinger Band indicator can just play a role in this regard, providing reference tips for the end of the consolidation state and helping traders avoid entering the market too early. Two common traps in trading are the "buy low trap" and the "sell high trap". Bollinger Band theory holds that market prices are interactive and relative, and there is no absolute high and low. Prices above or below the upper rail only indicate that they are relatively high or low. Therefore, when using platforms such as Anzo Forex to make trading decisions, investors also need to comprehensively refer to other technical indicators, such as price-volume relationships, market psychological indicators, analog indicators, and relevant market-related data, for comprehensive analysis.