(10) Closing Prices Are More Important Than Intraday Prices
It is one of the most basic guidelines of using Bollinger Bands in technical analysis. Bollinger Bands® are always designed depending on the closing price of the script or bond or forex exchange.
The intraday prices don’t have much effect on these bands. For example, if a stock is trading above its upper band in opening trade but at the end it closes within the band then it will not be considered as breakout.
It is therefore recommended that traders looking for range breakout above upper band should buy only if it closes well above the upper band.
However, if the script is closed near to upper band then also it could be a fake breakout signal.
(11) Pointing Of Bollinger Bands Can Indicate Prevailing Trend
It is one of the most amazing characteristics of Bollinger Bands in technical charts. Bollinger Bands® can indicate the prevailing trend in the markets.
In an uptrend, the upper Bollinger band will point nicely towards upside. Simultaneously, prices will constantly touch upper band more frequently.
In downtrend, the lower Bollinger band will point nicely towards downside. Simultaneously, prices will constantly touch lower band more frequently.
However, if the prevailing trend is over then the prices are likely to move away from outer bands. The price will no longer touching the outer bands.
Additionally, the outer bands will now again start flattening in a gradual manner.
- Bollinger Band Analysis: MSGraphics