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Bollinger Bands—Part 1: The BasicsIntroduction Imagine that you are placed on an island with only a trading platform (TradingView of course) and the island gods only permitted three indicators. What three indicators would you carefully select? At the top of my list would be the Bollinger Bands. Some people seek out complex or cryptic indicators in search for a better edge. Of course, some indicators and modes of anlaysis can be very useful despite being complex. But some indicators like the Bollinger Bands, can be valuable because of their simplicity, and they can also have a wealth of analytical value that is more complicated than would appear at a glance. In 1983, John Bollinger invented the eponymous Bollinger Bands. This valuable indicator operates centrally on the concept of standard deviation. In other words, standard deviation is a basic statistical concept behind the indicator, i.e., this concept is basic for mathematics professors and experts, but perhaps intermediate to advanced level for others. Standard Deviation One can easily find the common standard-deviation formula on the internet from many reputable sources. But one doesn't have to master the formula to use the concept of standard deviation—standard deviation essentially measures the variation in the data points around a mean (or average). Khan Academy offers a very useful and insightful guide to those who want to learn the core concepts of standard deviation. Supplemental Chart A contains Khan Academy's standard-deviation illustration and its well-worded explanation, although no one alive today can take credit for discovering and establishing this formula. Supplemental Chart A (Credit to Khan Academy's website for illustration with explanation of standard deviation) Here is a short, somewhat summary explanation of standard deviation's formula (though it doesn't apply to standard deviation of samples, a slightly different formula). Calculate the mean of a data set (e.g., a price series). Calculate each data point's distance, or variance, from that mean. The distance between each data point and the mean is then squared. Sum all the squared distances between each data point and the mean. Divide the sum of the squared distances by the total number of data points, or values in the data set. Take the square root of the quotient from the previous step, which is the average of all data points' squared distances from the mean. Moving Calculations Having identified the statistical concept at the heart of the bands' operation, it helps to remember that the moving average at the center of the bands, sometimes called the middle band of the Bollinger Bands, mean that the entire indicator should be considered a "moving indicator." In other words, even the standard-deviation bands, plotted a given number of standard deviations above or below the moving average, are moving based on the price data that evolves as time passes. Just like the moving average at the center of the bands continues to calculate the mean based on a moving lookback window of 20 periods or some other fixed number of periods, the standard deviations above and below the mean also derive from a moving lookback window. Analysis / Interpretation Bollinger Bands, as John Bollinger described in the journal Technical Analysis of Stocks & Commodities, "answer the question whether prices are high or low on a relative basis." He further explained that the "bands do not give absolute buy and sell signals simply by having been touched; rather, they provide a framework within which price may be related to indicators." He essentially recommended comparing price in relation to the bands and then using the action at the edges of the bands and using such signals in combination with another well-selected indicator (e.g., one might consider RSI). As created by Bollinger, the bands are typically set at +2 and –2 standard deviations above the mean. This can be adjusted on TradingView's platform. A well known trader, Anthony Crudele, uses the Bollinger Bands set at +3 and –3 standard deviations from the mean. He also uses the bands extensively as part of his system, and he does so with some unique and interesting features that he added. This author recommends following his videos regardless of whether his strategy is ultimately followed or adopted or whether some other strategy is adopted as most suitable for a particular asset or time frame. The bands not only measure whether price is high or low on a relative basis. But importantly, they reveal realized-volatility conditions in the market. If price volatility (or variation from the mean without regard to direction) is expanding in a trend-like move on the specific time frame being examined, whether hourly, daily, weekly, monthly or longer, then the Bollinger Bands reveal this by opening and widening, much like jaws. The jaws of the bands contract when volatility is contracting. Volatility—implied and realized—tends toward cycles and mean reversion. So the bands helpfully show traders where volatility is within its cycle. Some traders, for example, use the bands to trade squeezes, and when the bands contract for a substantial period of consolidation and narrow significantly. The squeeze helps increase the probability of a volatility expansion, a potential a widening of the bands as price moves either in the direction of the prior trend or a reversal. As with other indicators, the significance of the signal should be interpreted in the context of the time frame being analyzed. Supplemental Chart B In Supplemental Chart B, notice how the Bollinger Bands contracted as price consolidated in the latter part of last year on the weekly chart of SPY. The Bollinger Bands have been expanding as price has pushed higher to new highs at the degree of trend shown, i.e., the uptrend from 2022 lows to present. Conclusion The Bollinger Bands provide more analytical tools and features than the ones described today. If readers are interested in a more in-depth post on Bollinger Bands (perhaps a Part 2 as contemplated by the title), please indicate this in the comments! Look forward to hearing from you. ________________________________________ Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed. Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders. DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
NASDAQ:NDXEducation
by SquishTrade
2
Low-risk, Predictable Speculation on VX FuturesA lot of traders I talk to are afraid of trading volatility products. When I watch trading shows even the professionals are afraid of trading the VIX because they don't understand it. I find that funny because as someone who has experience trading all asset classes and analyzing a dozen casino games I find the VIX to be the most mean-reverting asset. The more an asset returns to its mean price, the more predictable it is, the more risk you can allocate to that product. For instance the safest bet in the casino is around 48% probability of success. That bet is betting red or black in Roulette. For investing there is no safe bet. We know that if you spread your dollars around in the S&P500 over the last 30 years, you would have done well but no one can predict which 10 stocks would have outperformed over the last 10 years. I have probably analyzed several dozen indicators over several dozen securities across all the asset classes: crypto, stocks, bonds, etc. For the last 30 years the VIX has had a flat bottom price average around 14-16 dollars. Its top is around 30-40 dollars. Comodities, equities, currencies, etc they all have black swan political or weather events. They are influenced by fear and lack. Why not trade the vehicle that correlates with fear? that's the VIX. Humans are predictable. They will always go through cycles of fear. Now we know the asset class but how do we measure the mean? I chose the Directional Trend Index but with a twist. the DTI takes 3 values to create the mean trend lines( R, S, and U) . I cycled through 1 to 50 permutations in all 3 values. It turns out that a reverse or descending numerical input is the best performing. Now we have the asset: VX Future The strategy: Reverse DTI with any descending number of your choice (10,5,3) The indicator: VIX chart 4 hours: I was told by floor traders that the big money banks use 4 hour and daily charts for analysis. So I always trade on this to swim along the trend of the big fish. So I open up a 4 hour chart of VIX, apply the pine script of DTI , update the R S and U values, and create a strategy. It returned over 100% profit in the backtesting. I tried linking my chart screenshot for proof . hopefully this worked. this is my first post. :-) TVC:VIX I traded this on traderspost automated trading with $50k paper money and I made over $35000 in 90 day free trial. Reach out to me if you would like to schedule a call for more help.
NASDAQ:AAPL
by apollos1337
$FB - Bottomed out reversal play with +10% to 30% upsideTechnical Analysis Scenario 1 - Bullish Price has bottomed at $150 with a mean reversion play to $192-$230 depending on which resistance level holds above. Scenario 2 - Bearish The next few weeks will determine if we have a long entry above $170 (if price breaks above). If it resists at the $170 -$180 level then we have a continuation to $150 or a squeeze. Price Target Entry $170-$180 Target 1: $192 Target 2: $210 Target 3: $230
NASDAQ:METALong
by subtlepapi
S&P 500 ---→ IN FOR A DEEP CORRECTION. MEAN REVERSION PENDING.S&P 500 IS IN FOR A DEEP CORRECTION. Monthly SPX Regression Channel, spanning 40 years, with bands of +4/-4 standard deviations. This is a long-term channel showing a Normal Distribution of SPX price occurrences. At least 95% of the price occurrences occurred within the Comfort Zone, the blue area between +2/-2 stdev as it should be. For 14 months (3.54% of the total bars) price has come out above the Comfort Zone, and even beyond +4 stdev. In an uptrend channel this type of action commands a Mean Reversion most of the time. Because this channel and its bands are dynamically calculated, the only alternative is for the price to stay out of the Comfort Zone until the channel adapts or accommodates (widens) to engulf the new prices, but in this case everything points to a MEAN REVERSION WITHIN THE NEXT 12 to 24 months. THEREFORE SPX IS GOING LOWER. Currently the Comfort Zone is between 3632 / 1818 Bear markets are not cleared up in a few days or weeks. They take time to unwind. Bear market rallies: Trade'm, but don't Trust'm We wrote an article about this channel on Feb-21-22
SP:SPXShort
by Point-Blank-Trading
3 Volumes > 1 Up :: Volume Series Vol.2I am always excited about what the users here conjure up with Pine. I don't know if it's because of Pine’s new features, but little by little TV just keeps getting better and better. What caught my attention is the Raindrop from Makit0. You can find the indicator, or let's better call it this charting instrument, when you search for "Raindrop" in the Indi menu. I think it's really nice that the code is accessible free of charge and gives others the opportunity to improve and refine the code. Everything is not yet fully developed but the foundation stone has been laid. I'm not quite sure about the settings either, but for now I'm very happy with them. Most likely use "simple" candles. Candles "earlier" were high-end in contrast to the "previously" known charting instruments. Point & Figure, Line-Chart and Bar-Charts are the veterans. Meanwhile the financial market is more complex and today's trader has to process a lot of information that cannot be reconciled with a candle, for example. Therefore, I am always looking for "things" that provide me with certain information quickly and efficiently and ideally combine different things so that a "step" or one or even better several things are omitted on the chart. The raindrop as a charting instrument is still quite new. If you google you will find the origin 2018. There you will also find what you are looking for when it comes to the function or the construction behind it. It is basically nothing more than a tuned candle with a vertical volume profile and a session splitter. It also looks pretty chic and doesn't clutter the chart. This is an interesting thing, especially in the daily timeframe , because with the daily you get a built-in, easy way to separate the ETH / Electronic Trading Hours / Overnight / Asia and Europe from the RTH / Real Trading Hours / Pit Session / US session. Unfortunately, I still lack the setting for the indicator itself that you can further specify the time of the split. The Raindrop simply divides 24h in half ... So you get a rough breakdown instead of an exact one. However, the current option is better than nothing and thus replaces the rough session indicator and the volume profile . The less stuff there is on the chart, the more overview you have and the clearer the focus. For example, if you have not paid attention to different sessions and volumes beforehand, you have an easy way of quickly taking this into account with one tool at a glance. It only takes a few seconds can provide a good source of objective data. What you can do here primarily is to quickly and easily see at which price levels the most volume has arisen and how the focus (here on the example of the DailyTF) of the overnight and the US session is. You can easily see where there was very little volume and which zones are highly frequented and thus interesting for later price movements. The raindrop is a mixture of traditional chart display, volume and equivolume. I have added a chart below in the comments in which you can see the only available equivolume tools from TV compared to Raindrop. The definition of equivolume from the WWW: "In the Equivolume Chart, the price is shown in the form of rectangular boxes. The height of the boxes represents the range between the highest and lowest prices. The width of the boxes shows the trading volume . The wider the box, the greater the trading volume in the period under consideration. " It's kind of like a volume weighted candle. The raindrop is a good tool to objectively display volume and sentiment. As with everything, there are certain "patterns" in the form of different raindrop types that I don't want to list here. The left and right "mean" / "value area" / "price level with the most volume" of the raindrop is calculated using 2 anchored VWAPs. In order to show the connection to the VWAP (2nd chart) and the volume profile with activated Developing Value Area (in the 3rd chart window) I have added the two lower windows. Each of the tools listed has a meaningful use, but you don't always need everything and if necessary you can combine all 3 representations on a chart ... The raindrop provides 4 parameters - high - Low and the mean of the 2 split periods We can see with all 3 charts that the information is the same and only the presentation varies. I have no idea whether it will be of any use to me in the future, but I will now observe it continuously and learn from it. Actually, I had no intention of creating a blog post, but if you ever make the effort to compare the Raindrop with the other tools, I can share it right away and save others the trouble. The information of the raindrop is clearly confirmed for me and now it is up to me or the user whether and how one can / want / want to use it for daily trading. I think I'll publish something about it here, but for now I'm done. Have fun with it!
CME_MINI:MESH2021
by HanDollarian