Investors often find Bollinger Bands very useful because they show when index
or stock levels are reaching extremes.
This is accomplished because Bollinger bands (on a 20-2-2 setting) measure
the tick action against two standard deviations of action.
Typically, when a tick is above or below the extreme bands, it indicates an
overbought or oversold condition. So traders pay attention when this happens
because a pull back or rise from a low is highly probable.
One way to ascertain if this may be the case, is to look at the level of a
9 day RSI indicator reading. If it is in the 70 to 80 area, then the market
is reaching an overbought area. If that reading coincides with a tick above
the upper Bollinger, then the overbought possibility becomes a higher probability.
((The opposite applies (20 to 30 area) on the down side.))
Marty Chenard is an Advanced Stock Market Technical Analyst that has developed
his own proprietary analytical tools and stock market models. As a result,
he was out of the market two weeks before the 1987 Crash in the most recent
Bear Market he faxed his Members in March 2000 telling them all to SELL. He
is an advanced technical analyst and not an investment advisor, nor a securities
broker.
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