Bollinger Bands Indicator, Technical Analysis Lessons Series

[ScriptBoss]

How to attach Bollinger Bands Indicator to chart:
1- Go to the tree in your left hand.
2- Go to indicators node that appears in the tree.
3- Fine Download Bollinger Bands Indicator from indicators tree and right click on it and select attach to chart.
4- You will have Bollinger Band (14, 2, Simple) File.
5- Copy this file to you platform path, in templates folder, Example (C:\Program Files\”YourSystemName\Templates).
6- After copy it, open you platform trading system then add the indicator file witch you added.
7- Open a chart of symbol, like (EUR/AUD), by right click on the specific symbol then choose “chart”.
8- Then add it, as the figure 1.1
9- After attach it, it will be as figure 1.2


http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%201/Figure%201.1.JPG
Figure 1.1, Before attached,

After attach Bollinger bands to the cart it will be appear like figure 1.2
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%201/Figure%201.2.JPG
Figure 1.2, After Attached
What are Bollinger Bands?
Bollinger Band is constructed by placing upper and lower bands around a moving average; the band width is not constant but instead proportional to the mean square divergence from the moving average over the specified period of time. Based on the Bollinger Band analysis, the decision to enter/exit the market is made when the price rises above upper BB resistance or falls below lower Bollinger Band support.

Bollinger Bands have created a new mechanical trading system—a system that's simple, yet strong enough to be reliable across all types of stocks, in all types of market environments. This system provides a high probability of reliable performance for the future, not just the past.
Bollinger Bands are an indicator that allows users to compare volatility and relative price levels over a period time. The indicator consists of three bands designed to cover the popular of a security's price action. Bollinger Bands are able to react quickly to market conditions.
The indicator consists of three bands designed to encompass the majority of a security's price action.
Bollinger Bands contain three indicators.
1. A simple moving average in the middle.
2. An upper band (SMA plus 2 standard deviations).
3. A lower band (SMA minus 2 standard deviations).
Bollinger Bands are volatility curves used to identify extreme highs or lows in relation to price. Bollinger Bands establish trading parameters, or bands, based on the moving average of a particular mechanism and a set number of standard deviations around this moving average.
For example, a trader might decide to use a 10-day moving average and 2 standard deviations to establish Bollinger Bands for a given currency. After doing so, a chart will appear with price bars capped by an upper boundary line based on price levels 2 standard deviations higher than the 10-day moving average and supported by a lower boundary line based on 2 standard deviations lower than the 10-day moving average. In the middle of these two boundary lines will be another line running somewhat close to the middle area depicting in this case, the 10-day moving average. Both the moving average and the number of standard deviations can be altered to best suit a particular currency.
Jon Bollinger, creator of Bollinger Bands recommends using a simple 20-day moving average and 2 standard deviations. Because standard deviation is a measure of volatility, Bollinger Bands are dynamic indicators that adjust themselves (widen and contract) based on the current levels of volatility in the market being studied. When prices hit the upper or lower boundaries of a given set of Bollinger Bands, this is not necessarily an indication of an imminent reversal in a trend. It simply means that prices have moved to the upper limits of the established parameters. Therefore, traders should use another study in conjunction with Bollinger Bands to help them determine the strength of a trend.
As I mentioned earlier Bollinger bands are not really meant to be used as a signal generating indicator but in conjunction with another indictors can be very useful.
I like to use Bollinger bands and RSI together to generate possible buy and sell signals or to confirm overbought or oversold areas.
The default setting for Bollinger bands is 20 and 2, which means the indicator takes the past 20 time periods into account and bases its calculations based on two standard deviations from the mean. You will most likely want to leave the default unchanged when you plot this indicator.
But the most suitable periods is 14 (average), as you can see in this figure 1.3 the Upper BB is (14,2), and the bottom on is (20,2). The (14,2) seems more reliable than (20,2).you can see when the market will go down or up in details.
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%201/Figure%201.3.JPG
Figure 1.3

[ScriptBoss]

Some traders use B-Bands in conjunction with another indicator, such as the Relative Strength Index (RSI). If the market price touches the upper B-band and the RSI does not confirm the upward move (i.e. there is divergence between the indicators), a sell signal is generated. If the indicator confirms the upward move, no sell signal is generated, and in fact, a buy signal may be indicated. As shown figure 2.1.
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%202/Figure%202.1.JPG
Figure 2.1

If the price touches the lower B-band and the RSI does not confirm the downward move, a buy signal is generated. As figure2.2.
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%202/Figure%202.2.JPG
Figure 2.2



If the indicator confirms the downward move, no buy signal is generated, and in fact, a sell signal may be indicated, as figure2.3.
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%202/Figure%202.3.JPG
Figure 2.3

For more details please study this table.
READING MEANING
Stock price touches the upper Bollinger Band and RSI is greater than 70 A relative high in the stock price may have been reached and a downturn in stock price may occur in the near term.
Stock price touches the lower Bollinger Band and RSI is less than 30 A relative low in the stock price may have been reached and an upturn in stock price may occur in the near term.
Stock price is at the upper Bollinger Band but RSI is less than 70 Inconclusive. Generally the current stock movement trend will continue.
Stock price is at the lower Bollinger Band but RSI is greater than 30 Inconclusive. Generally the current stock movement trend will continue.
Double Top Sell: A Double Top Sell signal is given when prices peak above the upper band and a subsequent peak fails to break above the upper band. The bearish setup is confirmed when prices decline below the middle band. As figure 2.4.

http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%202/Figure%202.4.JPG
Figure 2.4

Double bottom Buy: A Double Bottom Buy signal is given when prices enter the lower band and remain above the lower band after a subsequent low forms. Either low can be higher or lower than the other. The important thing is that the second low remains above the lower band. The confident setup is confirmed when the price moves above the middle band, or simple moving average. As Figure 2.5.
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%202/Figure%202.5.JPG
Figure 2.5

Bollinger Bands can be applied to any type of chart, although this indicator works best with daily and weekly charts. When applied to a weekly chart, the Bands carry more significance for long-term market changes. John Bollinger says periods of less than 10 days do not work well for B-Bands. The optimal period is 20 or 21 days.
Like most computer-generated technical indicators, I use B-Bands as mostly an indicator of overbought and oversold conditions
Periods: To identify periods when prices are at extreme, and possibly unsustainable, levels. Standard dev: To identify periods of high and low volatility
If the price moves within upper and lower bands, then Bollinger Band analysis is not a reliable method to determine when the best time to open/close positions is. Once the price penetrates the band to, then come back to the previous levels, then it is considered as the right time to open a position

[ScriptBoss]

Bollinger bands are used to measure a market’s volatility. Basically, this little tool tells us whether the market is QUIET or whether the market is LOUD! When the market is quiet, the bands contract; and when the market is LOUD, the bands expand
Notice on the next figure 3.1, when the price was quiet, the bands were close together, but when the price moved up, the bands spread apart. The pin show you the spread point, before the pin the market was quiet, then it expanded in the pin point
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%203/Figure%203.1.JPG
Figure 3.1


One thing you should know about Bollinger Bands is that price tends to return to the middle of the bands. That is the whole idea behind the Bollinger bounce. If this is the case, then by looking at the chart below Figure 3.2., can you tell us where the price might go next?
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%203/Figure%203.2.JPG
Figure 3.2.

[ScriptBoss]

The squeeze (tightening) is a period of low volatility and often happens before a big move. It can also help identify potential breakout areas. As shown in figure 4.1
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%204/Figure%204.1.JPG
Figure 4.1

Figure 4.2 show you how the squeeze related with other Indicator like (RSI).
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%204/Figure%204.2.JPG
Figure 4.2

When the bands “squeeze” together, it usually means that a breakout is going to occur. If the candles start to break out above the top band, then the move will usually continue to go up. If the candles start to break out below the lower band, then the move will usually continue to go down. See figure 4.3.

Looking to figure 4.3, you can see the bands squeezing together. The price has just started to break out of the down band. Based on this information, where do you think the price will go?
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%204/Figure%204.3.JPG
Figure 4.3 down move.

The price has just started to break out of the down band. Based on figure 4.4.
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%204/Figure%204.4.JPG
Figure 4.4

This is how a typical Bollinger Squeeze works. This strategy is designed for you to catch a move as early as possible. Setups like these don’t happened everyday, but you can probably spot them a few times a week if you are looking at a 15 minute chart

[ScriptBoss]

Using VTL script on Bollinger band indicator.

The VTL scrip help you to back tracing the buy and sell to all points of Bollinger band which attached to chart.

How to use trade script:
1- Please download these files which have extension.
Bollinger Bands_B.sct
Bollinger Bands_E.sct
Bollinger Bands_S.sct
All 3 files have the same name but there is a deferent of file name of final character B,E,S.
Which mean one For buy,Sell, and Exit.
2- Then add them to C:\Program Files\”YourCompanyName”\Advisor.
3- After that open your system the go to scrip on the left hand tree.
4- open your symbol chart.
5- Right click on the Bollinger Band Scrip and choose attach to chart. See figure 5.1.
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%205/Figure%205.1.JPG
Figure 5.1

6- then the platform will be busy fro a while to process the script then the back tracing study will be shown as a report on the screen.
The report will show you how many point will be success on this symbol and how many time will be failed. And more details. see figure 5.2.

http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%205/Figure%205.2.JPG
figure 5.2

See figure 5.3, it show you the sell point and buy points, the red arrows showing you sell point and the green arrows showing you a buy points. But you have to know that there are some points are not profitable and another and profitable, that’s dependent on you VTL study, the report that appeared in figure 5.2 show you the result of your study.
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%205/Figure%205.3.JPG
Figure 5.3

Now there is a study of BB Script using VTL VS RSI, as you can see when you add BB scrip code to chart it will show you the sell and buy point, and as you can see there are some point are profitable successfully, to be sure of this study add RSI indicator and compare between them, in the sell point (red arrow) of BB the RSI show you a top sell, and in the buy point (green arrow) show you bottom buy, that mean in this point you can take you action and be sure that you will be success. See figure 5.4.
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%205/Figure%205.4.JPG
Figure 5.4

As you can see in figure 5.5, there are X point appeared in the chart, that mean there is a closing point you can close your position and exit from you trading, the first Red arrow in the left hand, you can when the script advise you to open a position and when you close it. Open you Sell position in the High price and close it in the lower price of this period of time.
http://www.forum.hybrid-solutions.com/VTL/Bollinger%20Band/Lesson%205/Figure%205.5.JPG
Figure 5.5

To help you, I’m adding this Bollinger Bands (BB) VTL Scrip code; there are three codes the first one is for buy, the second for sell and the final one is for closing sell or buy position, and the buy script should be written in the but script area, the sell and exit should be written in the Sell and exit Area.
If you want to add this scrip to your chart manually you have to do these steps.
1- Right click on the scrip on the left hand tree, then choose create.
2- VertexFx Trading Scrip Language (VTL) Editor Screen will be appearing.
3- Chose script choice then pree next.
4- Write advise name and author then press ok.
5- Write this buy script on the buy screen :
# Buy if a previous value was below the low band and is now above
SET Bottom = BBB(CLOSE, 14, 2, SIMPLE)
SET Top = BBT(CLOSE, 14, 2, SIMPLE)
((REF(CLOSE, 1) < REF(Bottom, 1)) AND
CLOSE > Bottom) OR
# Also buy if the close is above the top band plus 2%
CLOSE > Top * 1.02
6- Write this Sell script on the sell screen :

# Sell if a previous value was above the high band and is now below
SET Bottom = BBB(CLOSE, 14, 2, SIMPLE)
SET Top = BBT(CLOSE, 14, 2, SIMPLE)
((REF(CLOSE, 1) > REF(Top, 1)) AND
CLOSE < Top) OR
# Also sell if the close is below the bottom band minus 2%
CLOSE < Bottom * 0.98
7-then write the exit script:
#Exit Script:
SET Bottom = BBB(CLOSE, 14, 2, SIMPLE)
SET Top = BBT(CLOSE, 14, 2, SIMPLE)
((REF(CLOSE, 1) > REF(Top, 1)) AND CLOSE < Top) AND
CLOSE < Bottom * 0.98
SET Bottom = BBB(CLOSE, 14, 2, SIMPLE)
SET Top = BBT(CLOSE, 14, 2, SIMPLE)
((REF(CLOSE, 1) < REF(Bottom, 1)) AND
CLOSE > Bottom) OR

# Also buy if the close is above the top band plus 2%
CLOSE > Top * 1.02

[SVRMGR]

I have just seen this wonderful Video Tutorial about Bollinger Bands (http://www.forum.hybrid-solutions.com/showthread.php?2948-Bollinger-bands-and-standard-deviation-FOR-VERTEXFX), posted by UTrade-FX

Enjoy it

Regards

[sina2]

Dear SCriptboss

I have read your studies and have just registered to thank you for them, they are great and I learned alot from them

i made a look for the videos as well and they are pretty good

:)