I have used Bollinger Bands in my trading and market analysis for a great many years. In fact, my very first professionally published article (in Stocks & Commodities) was on the Bands. Somewhat surprisingly, John Bollinger himself called me to discuss the article upon its publication. I was recently asked the following question:

Is there any way of knowing when price will hit and go beyond or below the Bollinger band to indicate that the real end is actually been reached?

The first thing I would toss out there is something Bollinger himself  wrote in an article published on the Trade2Win site entitled Bollinger Bands – The Basic Rules. He said:

“Closes outside the Bollinger Bands are continuation signals, not reversal signals.”

I won’t contest that, though I will add the comment that when a market gets well outside the Bands, there is often a pause or retracement to remedy that situtation. I would never, though, make the assumption of the trend ending or anything like that.

It is worth keeping in mind what the Bollinger Bands are. Stated simply, they are lines drawn a certain number of standard deviations (normally 2) above and below an average (generally 20 periods). The standard deviations are calculated based on closing price. So what it comes down to is that the Bands are nothing more than expressions of recent volatility.

I will have more on this subject in future posts.

Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.

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