I find it very useful to watch price relative to trendlines, SR levels and Bollinger Bands.
Even though this is a small TF chart.. you can see how the BBs and TLs provide a map of moves... it appears to "react" to the lines, but of course the lines are determined by previous price action... and price "remembers" what has happened in the past. Even that is a metaphor... more accurately the mass of traders making buy/sell decisions remember what has happened in the past and act accordingly.
Regarding the BB's... these are MTF (multiple time frame) settings at a factor of 3x:
20/2 BB -green; 60/2 BB -blue; 180/2 BB -red; 540/2 BB -black
which gives a sense of the short term action relative to longer term trends
The upper/lower BBs are 2 std deviations from the midline which is a simple moving average. The moving average acts like a magnet... in a trend, you will often see price pull back to the midline and then reverse.
Some guidelines for "reading" the BBs
- price consistently staying on one side of the midline shows strength in that direction
- when a smaller set of BBs stays generally on one side of a midline of a higher TF BB set shows strength in that direction
- when a smaller outer BB moves outside that of a higher TF outer BB... indicates power in that direction
- a cluster of outer BBs acts as a SR level (support / resistance level) - the more BBs, the stronger; the higher the TF's the stronger. Obviously black (540BB) is the strongest.. good time to exit position entirely and wait for the pull back to finish; very often there is a reversal or at least substantial pull back off a 540BB. Typically your stochastics and MACD will indicate an extreme at BB clusters and the CCI will show a divergence for a possible reversal or at least consolidation before continuation.
For those BB skeptics, I wrote an autotrading strategy in ensign which is very profitable, consistently so... one of the exit criterion was to exit the trade on a lower/higher close AFTER price had closed beyond the 20/2BB (above the UBB or below the LBB). I had other exit criteria as well of course. I tested it over time with and without this BB exit criterion and the results were far superior WITH this exit. Conclusion: there is an emprical justification for the assumption that if price gets too far afield from a "mean" (used loosely) there is a counter move back towards that mean. The "mean" in this case is a moving average... of course any statistician could tell you that.
Credit for this setup is due to ingos (more recently 'gee') in the ensign community of traders.
The following 2 users say Thank You to Saroj for this post:
I'll gather my dragon pattern stuff together and start a thread on them.. they are just a type of DB/LF but the pattern helps to see these and the dragon itself usually results in a very impressive power move... I'll also get my settings posted in another thread.. hopefully both later today... thanks for your interest.
The following user says Thank You to Saroj for this post:
David, so sorry for the late response... life got crazy for me at end of June... I'll get that dragon stuff together..
A friend and I found a programmer who said he could take signals off ensign and send/receive orders to/from broker via NT; but I decided to try out NT myself for a while to see how it would do for me. so far I like NT except for some horrendous performance issues that I'm encountering.. hopefully they will be addressed to my satisfaction and I can proceed, but don't know how to programmatically take trades off a BB chart..