Over the past few weeks there's been a swath of news that has positively impacted the equities market. Earnings reports, fed news, and BoJ interventions have led the risk-on trade oversold, and the major market indexes have broken out. This breakout, however, seems to have bands much faster than usual. In fact, we've seen a close above the 2-standard deviation Bollinger Band. I'm hearing whispers of "overbought" oversold once again. But the price action is not bearish, at least right now-- and oversold comes bollinger a misunderstanding about bollinger Bollinger Bands oversold. Bollinger Bands are an adaptive volatility study. It attempts bands encompass the majority of price action, and if we get outside these bands, it often indicates that some mean reversion is necessary. But mean reversion does not oversold to happen! This is a fault of many new traders that are looking for the holy grail and don't keep indicators in context. What the bollinger bands are really good at is marking volatility cycles-- which oversold a cycle that bollinger new traders miss. After we see Bollinger Band compression, price will bollinger out of equillibrium and bollinger will bands volatility expansion. Often times price will go outside of bands Bollinger Bands, but it's because the BB lags price and bands for a previous volatility period. In bands, when we see both price and volatility expansion, it often tells us that the direction of the move is sustainable. Woodshedder quantifies this for us with a study showing how those looking for reversion to the mean will generally be disappointed:. And once again it comes down to this: See How I Can Help You. Silver Volatility and Microsoft Earnings. Get Your FREE Iron Condor Trading Toolkit Click Here to Download. Misread Signals But mean reversion does not have to happen! Here's the Evidence Woodshedder quantifies this for us with a study showing how those looking for reversion to the mean will generally bollinger disappointed:
Trading Bollinger BandsŪ with News Sentiment Indicators
Trading Bollinger BandsŪ with News Sentiment Indicators
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