(8) Bollinger Bands Are Reactive Indicators Not Predictive Indicators
It is one of the most common drawbacks or issues of using Bollinger Bands in technical charts. Like most of the technical indicators, Bollinger bands are also reactive in nature.
They are derived from a simple moving average which in turn is the average price over a certain number of price bars. It means that Bollinger Bands will always react to price moves only.
They will never forecast their moves. It is because these bands are reactive to price moves & are not predictive in nature. They are always based on the historical closing prices of a given script or bond.
They don’t anticipate price changes even on intraday basis. Bollinger Bands are best used along with various other indicators. You should pay attention to price analysis & risk management as a part of an overall trading plan.
[Read Also: 10 Reasons To Buy Stock Trading In Very Tight Range]
(9) Default Setting Is Not Workable For All Types Of Traders
It is one of the most popular issues or limitations of Bollinger Bands in technical analysis. Like other indicators, Bollinger Bands® are also accompanied with a standard setting in its default mode. But, standard setting will not work for all types of traders.
Generally, active traders may require a small number of periods or lower standard deviations. However, long term traders may prefer a greater number of periods or higher standard deviations.
Although, modification of settings can make the process more difficult to gauge the trend on the basis of guidelines or to spot double bottom or double tops formations.
But, you need to modify standard settings to meet your trading styles as well as the concerned scripts or bonds.
- Bollinger Bands Limitations: Azureedge.net