Bollinger Bands Strategies
The Bollinger Band theory is designed to depict the volatility of a stock. It is quite simple, being composed of a simple moving average, and its upper and lower "bands" that are 2 standard deviations away. Standard deviations are a statistical tool used to contain the majority of movement or "deviation" around an average value. Bear in mind that when you use the Bollinger Band theory, it only works as a gauge or guide, and should be use with other indicators.
Normally, we use the 20-Day simple moving average and its standard deviations to create Bollinger Bands. Strategies some investors use include shorter- or longer-term Bollinger Bands depending on their needs. Shorter-term Bollinger Bands strategies (less than 20-Days) are more sensitive to price fluctuations, while longer-term Bollinger Bands (more than 20-Days) are more conservative.
So how do we use the Bollinger Band theory?
The Bollinger Band theory will not indicate exactly which point to buy or sell an option or stock. It is meant to be used as a guide (or band) with which to gauge a stock's volatility.
When a stock's price is very volatile, the Bollinger Bands will be far apart. In technical indicator charts, this is depicted like a widening gap. On the other hand, when there is little price fluctuation, hence low volatility, the Bollinger Bands will be in a tight range. This is depicted as narrow "lanes" along the chart.
As for how we use the Bollinger Band theory, here are a couple of guidelines.
History shows that a stock usually doesn't stay in a narrow trading range for long, as can be gauged using the Bollinger Bands. Strategies include relating the width with the length of the bands. The narrower the bands, the shorter the time it will last. Therefore, when a stock starts to trade within narrow Bollinger Bands, we know that there will be a substantial price fluctuation in the near future. However, we do not know which direction the stock will move, hence the need to use Bollinger Bands strategies together with other technical indicators.
When the stock starts to become very volatile, it is depicted in the chart by the actual stock price "hugging" or staying very close to either the upper or lower Bollinger Bands, with the Bands widening substantially. The wider the Bands are, the more volatile the price is, and the more likely the price will fall back towards the moving average.
When the actual stock price moves away from the Bands back towards the moving average, it can be taken as a signal that the price trend has slowed, and will move back towards the moving average. However, it is common for the price to bounce off the Bands a second time before a confirmed move towards the moving average.
As usual, and for the Bollinger Band theory in particular, it should be noted that individual indicators should not be used on their own, but rather with one or two additional indicators of different types, in order to confirm any signals and prevent false alarms.
Steven is the webmaster of http://www.option-trading-guide.com If you would like to learn more about Option Trading or Technical Analysis, do visit for various strategies and resources to help your stock market investments.
This Market Is Different
All of the talking heads have been telling us that this market is different. You are going to have to be patient and soon (hopefully in your lifetime) the DOW and the Nasdaq will be back at their old highs. They cite all the statistics about how the economy is improving - consumers are spending, the consumer confidence index looks OK, unemployment is getting better, blah, blah, blah.
Reach in your pocket and take out that big roll of bills. Depending on how many of them you have you feel pretty good. BUT did you know they are not worth the paper they are printed on? Huh? Let me explain.
Ignore Stock Market Talking Heads
You should ignore analysts on TV, the radio, the newspaper and all other TALKING HEADS when it comes to investing! What stocks do they talk about? - The same old group, every day of every year - Why? Because they don't know any better, they are sheep like the general public, repeating what every economic textbook says and every other economist tells them to say. Everyday, the same companies are highlighted on the evening news -
Market Experience of a Na´ve Stock Operator
Sometime in the third quarter of 1997, someone told me that I should play the stock market. Knowing nothing about the stock market, I turned to some colleagues to seem to know a lot about it. Following their advice, I opened an account with a stock brokerage company. Well, up to that point it was simple enough. But what should do I do next? So I go to my knowledgeable colleague of mine again. But now he says nothing. Hmm... The very person who was interested in opening an account for me, is completely indifferent now.
There has been great condemnation recently because China has been selling its goods on the world market at prices below what other countries, especially the U.S., can produce. It has been called exporting deflation.
Mutual Funds: The Modern Den of Thieves!
Mutual funds were created with the idea that one person can specialize and manage the investments of a large pool of money from multiple investors. Before the great depression mutual funds were called investment pools and mutual fund managers were called pool operators. The bull market of the 1920's created a time of economic prosperity akin to the 1990s. The conceptualization of the pyramid scheme occurred at this time as well.
An Old Proverb for Investing
"If you don't know where you are going, any road will get you there."
Shorting Stocks ? The Basics, Part II of II
After the publication of the first part of this two part series, I had a few questions asking if shorting stocks is legal and I will quickly reply with a big YES. Some people believe that shorting shares of American companies is not patriotic or does not seem like the right thing to do. Shorting stocks is not my primary method of making profits in the market as many of you already know, but it is a valid strategy that must be covered especially since the market has focused on red flag and shorting opportunities since December 2004. In the world of supply and demand, things go up and things go down, it's human nature. Stocks have been shorted for over a century and have provided investors with an alternative strategy to making profits.
Stock Market Investing Odds
The greatest stock market myth is the idea that investing in stocks is a form of gambling!
So, What is This Stock Market Thing Anyway?
We've all heard of the stock market and probably have a general idea of what it is and how it works either from high school economics classes, television financial reports, and the countless film depictions of what happens on the floor of the New York Stock Exchange. But how does it really work and what is meant by "playing the stock market?"
Finding A Good Stock
One of the things people are always asking me is how can I find a good stock. The answer I give does not please them. I say, "You are not qualified to pick stock. You don't know how so don't try. Put your money in a no-load mutual fund that is going up".
Stops Make Money
During the day I watch CNBC-TV, the stock market channel. Fortunately, I keep the sound muted or I would be hollering at the dumb "experts" being interviewed. The experts seem to know all about the market except they don't know how to protect their capital.
The Seven Mistakes All Novice Traders Make and How to Correct Them
We learnt the following the hard way! If any of these things applies to you, don't worry ? there is an easy solution!
Its dinnertime and the phone rings. It's Joe Noname with SuchNSuch Investment Company and has he got a deal for you.
Losses, not Profits, will Stop You from Trading in the Market
Should the market turn against you, it is important that you design a system that will produce as much loss as you are prepared to take. This loss, known as drawdown, is the maximum amount by which your trading float will temporarily drop at anytime. Doing this in advance, will help you avoid nasty surprises in the future. This gives you the confidence to continue trading when the good times start once more.
Trading as a Business
What can I expect to make my first year of trading?
Seecrets on Investment: Tired of Making Huge Losses in the Stock Market ? Part 2
No Load Mutual Funds: Investment Hype vs. Investment Help
With the internet such a huge part of our daily lives, many investors have access to a wide range of instant investment information.
Its A Duck
If it walks like a duck, quacks like a duck and looks like a duck it must be a duck.
Trading For A Living
How many times have you said to yourself, "I'd like to quit this job and just make a living trading in the stock market"? Well, maybe you can, BUT...
|© Athifea Distribution LLC - 2013|