(6) Fake Breakouts Is The Beauty Of Bollinger Bands
It is one of the most surprising characteristics of Bollinger Bands in technical charts. The outer bands are often the battlegrounds of buyers & sellers to eventually show a breakout pattern.
But, most of the time, price will remain within the Bollinger bands. Although, you may observe some fake breakouts from time-to-time but you need to be smart enough to identify them from authenticate breakouts.
You can differentiate fake breakouts from legitimate breakouts through employing additional indicators.
Some of the best indicators for this purpose include RSI indicators, MACD indicator, volume indicator, accumulation/distribution indicator, candlestick chart, increasing standard deviations to 2.5 & many more.
These additional indicators together with Bollinger bands can quickly help you to make better decision on time.
(7) Expansion & Contraction Of Bollinger Bands Is A Normal Process
It is one of the most important characteristics of Bollinger Bands in technical charts. Bollinger Bands® are a very powerful technical indicator of its own kind. They are usually drawn within and surrounding the price structure of a stock, bond or foreign exchange.
The upper & lower price bands will expand & contract depending on the price action of the concerned stocks, bonds or foreign exchange.
Therefore, upper band & lower band are a measure of volatility to the upside & downside of a prevailing trend. A stock or bond is likely to trade within the standard boundaries for almost 85% to 90%.
Thus, it provides relative boundaries of highs & lows to investors & traders for better decisions.
- Bollinger Band Analysis: MSGraphics