the hAndbook of technIcAl AnAlysIsFigure 12.14 Bollinger Bands Working in Conjunction with the Bollinger Oscillator
Pinpointing Potential Moves on the Daily Chart of Light Crude Oil.
Courtesy of Stockcharts.com
exceed one if price is above the upper band and will be below zero if price is below
the lower band. High readings indicate overbought conditions while low readings
indicate oversold conditions. Figure 12.14 show the Bollinger band and its two
indicators working together to pinpoint potential moves in the market.
Although the Bollinger band may be employed to initiate breakout entries,
Figure 12.15 shows Bollinger bands working effectively in pinpointing sell and
buy reversal entries on the Silver 30‐min chart.
Note that to reduce false or ineffective entry signals while trying to trade with a
larger trend, a trader should use the reversal entry breakout technique for Bollinger
band entries. Many of the failed buy signals found on the chart in Figure 12.15 would
have been successfully avoided or filtered out had the reversal entry breakout tech-
nique been employed.
Many traders also set up multiple Bollinger bands. There are numerous ap-
proaches when employing multiple bands. A popular approach employed by volatil-
ity traders using a Bollinger double‐band setup has an inner one‐standard deviation
(one‐SD) upper and lower band flanked by both two‐standard deviation (two‐SD)
and three‐standard deviation (three‐SD) upper and lower bands.
bollinger band setup 1 Once price closes above the SMA, enter long at the upper
one‐SD band with a profit target at the two‐SD upper band. The stoploss is placed