the hAndbook of technIcAl AnAlysIsbollinger band setup 2 Enter short at the upper two‐SD band with a profit tar-
get at the one‐SD upper band. The stoploss is placed just above the three‐SD upper
band. Conversely, enter long at the upper two‐SD band with a profit target at the
one‐SD upper band. The stoploss is placed just below the three‐SD lower band.
For more reliable entries, look for a resistive confluence around the upper two‐SD
band when shorting and a supportive confluence around the lower two‐SD band
when going long. See Figure 12.17.
bollinger band setup 3 Once price closes above the SMA in an uptrend, enter
long at the upper two‐SD band with a profit exit at the one‐SD upper band. The
stoploss is placed just under the SMA. Conversely, if price closes below the SMA
in a downtrend, enter short at the lower two‐SD band with a profit exit at the
one‐SD lower band. As with Setup 1 above, look for any trendline, chart pattern,
or overlay breakouts that coincide with the Bollinger one‐SD entry, with over-
sold conditions for an upside breakout and overbought conditions for a downside
breakout on the momentum oscillators. See Figure 12.18.
It is important to seek out levels of supportive (bullish) and resistive (bearish)
confluences to increase the probability of a reliable entry. Figure 12.19 depicts
such an entry at Point X, where we see price being supported by:
■ (^) A lower Bollinger band
■ (^) An uptrend line
■ (^) An oversold indication on the cycle‐tuned stochastic oscillator
■ (^) An expected cycle trough
Two other popular volatility band overlay indicators are the Keltner and
STARC bands. The Keltner band comprises a 10‐period SMA of typical price
Figure 12.17 Bollinger Bands Setup 2 on the Daily Chart of Intel Corp.
Courtesy of Stockcharts.com