Advanced Charting Techniques for High Probability Trading: The Most Accurate And Predictive Charting Method Ever Created

CHAPTER 5

Bollinger Bands, PSAR, Channels, Zones, and FTL

The Bollinger band (BB) is another very important technical indicator. It is represented by the red lines on the chart in Figure 5.1. The bands are plotted at two standard deviations above and below M2 (green). When using two standard deviations, we know that 95 percent of the price data (the line chart of the stock) will fall between the two Bollinger bands. In this chapter we study in greater detail how the line chart will travel between the Bollinger bands and M1 (white) and why this is a vital indicator to increase our profits.

FIGURE 5.1 Chart of FULT—UBB, LBB

■ There are two bands or lines placed around a moving average (MA).

■ The bands are placed two standard deviations above and below M2. Two deviations ensure that 95 percent of the price data will fall within the two bands.

■ When the stock price touches the upper band, the stock is considered overbought, and the price is expected to drop. When the stock price touches the lower band, the stock is considered oversold, and the price is expected to rise.

■ If the price crosses over M2 (green), the opposite band becomes a price target.

■ In a strong uptrend, the price will fluctuate between the upper band and M1 (white). In a strong down trend, the price will fluctuate between the lower band and M1 (white).

In Figure 5.1, the upper red line is called the upper ...