A look at Bollinger Bands and complementary indicators for Bollinger
Bands as suggested by John Bollinger
Overview
John Bollinger has written that, "Trading bands are one of the most
powerful concepts available to the technically based investor, but
they do not, as is commonly believed, give absolute buy and sell
signals based on price touching the bands. What they do answer is the
perennial question of whether prices are high or low on a relative
basis." He goes on to say, "It is the action of prices near the edges
of the envelope that we are particularly interested in."
As with most indicators, signals generated by Bollinger Bands should
be confirmed using complimentary indicators. According to Bollinger,
one of the biggest mistakes in technical analysis is the multiple
counting of the same information. For example, using different
indicators all derived from the same series of closing prices to
confirm one another.
The indicators he recommends to complement Bollinger Bands are:
RSI or MACD -- based on price alone
On-Balance Volume (OBV) -- combining closing prices and volume
Money Flow -- combining price range and volume
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