Trading Manual - Tips, Tricks, Strategies, and Tactics for Traders
Short summary:
seldom enough in and of themselves for really good trading. ... There is always the option to not trade at all when you can't ... 263 have used the Trader's Trick as our entry, and considerably ...
Long summary:
Trading Manual Tips, Tricks, Strategies, and Tactics for Traders Chapter 30 1-2-3S AND BOLLINGER BANDS Weve mentioned previously that Bollinger Bands perform a very important function relative to ones ability to read price charts. Bollinger Bands offer a visual presentation of the location of two standard deviations by the price action. Statistically speaking, two standard deviations will encompass 96.5% of all price action based on a simple or exponential moving average of prices. If those prices are the close, for example, then we can expect that 96.5% of all closes will fall within the limits of the Bollinger Bands. Of all the methods for finding market turning points, the Bollinger Bands have proved to be the most successful, in that they are statistically reliable in showing a trader where so-called overbought and oversold are located. In fact, any software that will do separate Bollinger Bands, one based upon a moving average of the lows and the other based upon a moving average of the highs, will indeed provide an excellent indicator of relative overbought and oversold. In the examples that follow, we will be using the conventional Bollinger Bands set at 2 standard deviations based on a 20 bar simple moving average of the closes. However, indicators are seldom enough in and of themselves for really good trading. Something else is needed to convict a trader of the fact that a market turn has taken place and that prices are now set to move in another direction, or at the very least cease moving in the direction in which they have been unfolding. That something else is the 1-2-3 formation. 1-2-3 highs that originate at the upper Bollinger Band or the moving average line, and 1-2-3 lows that originate at the lower Bollinger Band or the moving average line, provide some very excellent change-of-direction signals to the alert trader. Lets look at some examples of this type of trading. It works well for any time interval and in any market that is sufficiently dynamic to swing from side to side while trending, or swing with sufficient volatility within a Trading Range to cause there to be profitable 258 trading opportunities. In fact, if prices are not moving much within a chosen time frame, then it is probably not worthwhile trading it at all. In general, this occurs when the Bollinger Bands become relatively flat. Notice on the chart above: 1-2-3 = Sell short formations. 1-2-3 = Go long formations. Arr ...
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