Bollinger bands

1. Bollinger bands provide a relative definition of high and low.

2. That relative definition can be used to compare price action and indicator toarrive at rigorous buy and sell decisions.

3. Indicators can be derived from momentum, volume, sentiment, openinterest, inter-market data, etc.

4. Volatility and trend have already been deployed in the construction of Bollingerbands, so their use for confirmation of price action is not recommended.

5. Avoid colinearity. The indicators used for confirmation should not be directly related to one another.Two indicators from the same category do not increase confirmation.

6. Rice can, and does, walk up the upper Bollinger band and down the lower Bollingerband.

7. Bollinger bands can also be used to clarify pure price patterns.

8. Closes outside the Bollinger bands can be continuation signals, not reversalsignals.

9. The default parameters of 20 periods for the moving average and standard deviationcalculations, and two standard deviations for the bandwidth are just that,defaults. The actual parameters needed for any given market/task may be different.

10. The average deployed should not be the best one for crossovers. Rather, it shouldbe descriptive of the intermediate-term trend.

11. If the average is lengthened the number of standard deviations needs to beincreased simultaneously.

12. Bollinger bands are based upon a simple moving average. This is because a simplemoving average is used in the standard deviation calculation and we wish to belogically consistent.

13. Be careful about making statistical assumptions based on the use of the Standarddeviation calculation in the construction of the bands. The sample size in mostdeployments of Bollinger bands is too small for statistical significance and thedistributions involved are rarely normal.