(8) Assumptions Of Bollinger Bands Are Not Viable In Strong Trend
It is one of the most authentic characteristics of Bollinger Bands in technical charts. Bollinger Bands® are not viable for all types of market conditions or investors sentiments.
It assumptions are viable or works for flat, range-bound markets or gently trending markets only. These are the time periods during which market’s perception is unchanged.
Under these conditions, price tends to fluctuate between upper band & lower band. This bouncing of Bollinger bands is quite comparable to a ball bouncing between floor & ceiling.
On the other hand, when markets are in strong trend (either uptrend or downtrend) then market perceptions are changing quickly.
Thus, investors & traders can’t make profitable decisions during such market conditions.
(9) Bollinger Don’t Tell When Selling Pressure Or Buying Interest Will End
It is one of the most popular characteristics of Bollinger Bands in technical charts. Bollinger Bands® are good technical indicators to tell oversold & overbought market conditions.
There are certain situations when the strategy is correct but the selling pressure or buying interest continues. There is no way to know when the selling pressure or buying interest will come to an end.
Therefore, traders & investors are advised to use protection in form of stop loss order. You can better use a 5-point stop to protect your investment in an untoward situation.
It will help you to minimize your losses if the price continues to breach Bollinger bands.
- Bollinger Band Analysis: MSGraphics