Below is a chart of Apple. The blue bands represent the standard Bollinger bands.
The chart displays a lot of useful information. It is evident from the chart above that the price follows the upper band at the end of May to the beginning of June and in July. In the above chart, you can also see lots of instances when the center line supports or resists the movement of price from one band to the other.
It is crystal clear that in the beginning of May and then in June, the stock overbought and the price went down on these instances.
Most of the programs utilized for charting with Bollinger bands use the settings as BB(20,2.0), meaning regular 20 bars with 2 standard deviation numbers. This is the typical view, this is how everyone uses this fantastic tool for trading. These methods are effective, but there are other more efficient techniques that you can use.
Start thinking differently from the common people and you will be able to get more advantage from the signs of this instrument. The next chart is based on BB(13, 2.0), meaning 13 bars are used rather than the 20.
You can get more details from this graph. The blues bars show the standard 20 bars and the bars are for the 13 bars. As you can tell that the price moves more closely to the upper red band at a number of places. On all the three uptrend, it appears to paint a far greater boundary.
Most importantly, in this graph you can also note that the lower band provided support in the middle of May and middle of June, which was not shown in the previous graph. The 13 bar input appears to improve the accuracy of the price motion shown by the graph.
You must be thinking now that this is not a surprise. If we keep on lessening the lines and take them to just one line, the it would just trace the price line precisely when taking a look at it retrospectively. But, if you wish to be one step ahead of the people with intraday trading then you should test out various time frames for the bands.
Here’s a graph with an 8 period Bollinger band added. Have a look at the graph and see what you can foretell about the trend and the support levels.
Most people trade Bollinger bands wrong, don’t be one of those individuals. If you understand how to use Bollinger band correctly, they can prove to be of great help. Using Bollinger bands indicator is a great way to find out which trades will be worthwhile for you.