1. Bollinger Bands provide a relative definition of high and low.

2. That relative definition can be used to compare price action and indicator to arrive at rigorous buy and sell decisions.

3. Appropriate indicators can be derived from momentum, volume, sentiment, open interest, inter-market data, etc.

4. Volatility and trend have already been deployed in the construction of Bollinger Bands, so their use for confirmation of price action is not recommended.

5. The indicators used for confirmation should not be directly related to one another. Two indicators from the same category do not increase confirmation. Avoid colinearity.

6. Bollinger Bands can also be used to clarify pure price patterns such as M-type; tops and W-type bottoms, momentum shifts, etc.

7. Price can, and does, walk up the upper Bollinger Band and down the lower Bollinger Band.

8. Closes outside the Bollinger Bands can be continuation signals, not reversal signals–as is demonstrated by the use of Bollinger Bands in some very successful volatility-breakout systems.

9. The default parameters of 20 periods for the moving average and standard deviation calculations, and two standard deviations for the bandwidth are just that, defaults. The actual parameters needed for any given market/task may be different.

10. The average deployed should not be the best one for crossovers. Rather, it should be descriptive of the intermediate-term trend.

11. If the average is lengthened the number of standard deviations needs to be increased simultaneously; from 2 at 20 periods, to 2.1 at 50 periods. Likewise, if the average is shortened the number of standard deviations should be reduced; from 2 at 20 periods, to 1.9 at 10 periods.

12. Bollinger Bands are based upon a simple moving average. This is because a simple moving average is used in the standard deviation calculation and we wish to be logically consistent.

13. Be careful about making statistical assumptions based on the use of the standard deviation calculation in the construction of the bands. The sample size in most deployments of Bollinger Bands is too small for statistical significance and the distributions involved are rarely normal.

14. Indicators can be normalized with %b, eliminating fixed thresholds in the process.

15. Finally, tags of the bands are just that, tags not signals. A tag of the upper Bollinger Band is NOT in-and-of-itself a sell signal. A tag of the lower Bollinger Band is NOT in-and-of-itself a buy signal.

My book, “Bollinger on Bollinger Bands” provides a comprehensive guide on how to use Bollinger Bands, which indicators to use for confirmation, trading systems utilizing Bollinger Bands and the basics of technical analysis. For an autographed copy and free shipping in the US see http://www.bollingerbands.com.

Please also visit http://www.BollingerOnBollingerBands.com. The site features four trading systems based on Bollinger Bands and provides stocks that meet the criteria for each of the trading systems, updated on a daily basis including long and short positions. There is also a powerful custom-charting program with a wide variety of indicators and an extensive stock-screening program.

Good Trading,

John Bollinger, CFA, CMT
(c) John Bollinger 2001
—————————————-
Bollinger Capital Management Inc.
http://www.BollingerBands.com

EURUSD

The Euro got a boost on yesterday, clearing the fib resistance into the 1.3015 zone, trading as high as 1.3070 earlier today. Next resistance is eyed at 1.3090, formed by the 61.8% retracement of the 1.3330-1.2707 move. Above the said resistance, the rally may extend towards key near-term barrier at 1.3330. Daily sentiment is slightly bullish due to yesterday’s rally of 250 points and the break above 1.3000/15. While support at 1.2950 holds, the upside will be favored. Current quote is 1.2995 @07:45 GMT

Support levels: 1.3000, 1.2950, 1.2900 and 1.2850.
Resistance levels: 1.3090, 1.3170 and 1.3330.
Market sentiment: long-term : bearish, mid-term : bearish, short-term : slightly bullish

AUDUSD

Interim support is being penetrated at .6400/15, suggesting that yesterday’s rally was corrective. The daily momentum is bearish and the Aussie has yet to overcome the .6535 resistance in order to confirm the rebound. Hourly charts are bearish at the time of this report. A sustained break below .6360 may encourage a drop towards yesterday’s low at .6300 and below. Current quote is .6391 @07:35 GMT

Support levels: .6350/60, .6300, .6230 and .6150.
Resistance levels: 6415, .6450, .6535 and .6570.
Market sentiment: long-term : bearish, mid-term : bearish , short-term : bearish

EURCHF

The consolidation continues into a narrow range between support at 1.4815 and resistance at 1.4970. A sustained break on either side is needed in order to provide some clues about next objectives. Above 1.4970, next barriers are eyed at 1.5030 and 1.5100, 1.5170. Below 1.4815, support is also emerging at 1.4750 and 1.4655. Current quote is 1.4896 @07:35 GMT

Support levels: 1.4800/15,1.4750 and 1.4655.
Resistance levels: 1.4970, 1.5030 and 1.5100.
Market sentiment: long-term : bearish, mid-term : bearish, short-term : neutral

After the rejection of the bailout plan the markets are crazier than before. Stay aside until the dust settles.

Financial markets are waiting for the negotiations on shaping of the $700bln bailout plan. Rep Barney Frank, in BBG, says rescue bill will likely be passed by Monday, and in less than a week a bill will be signed. Until the effect of the plan is clear the markets will remain choppy and volatile. Stay aside or trade with tight stops. Support is 1.4600 and 1.4550. Resistance is 1.4750 and 1.4865.

More than 12% rise in gold prices help the EUR/USD to rebound and gain 3 big figures. Market liquidity is thin and everyone with money can choose the direction and magnitude of the move. Probably the upward correction will continue. In these market conditions the best strategy is to stay aside. If you decide to trade you should use stops and take less risk. Support is @ 1.4280 and 1.4070. Resistance is @ 1.4440, 1.4480 and 1.4570.

Yesterday FED left the rates unchanged but warned that it is watching the markets and will act if necessary. FED rescued AIG by authorising NY Fed to lend up to $85bln as secured loans. We’ll see in the next few days if this is enough to calm the markets. Order books are very thin and the liquitity is extremely low. Be very careful and always use stops to protect your positions. EUR/USD is trying to continue its correction upwards but for now it is very difficult. Even better than expected ZEW couldn’t help. Support is @ 1.4070 and 1.3970. Resistance is @ 1.4220 and 1.4320.

Yesterday the things were pretty messy in the forex market. Lehman filed for Chapter 11 protection, AIG is seeking money and Washington Mutual is the next financial institution in trouble. Dow closed 504.48 pts down, which caused sell off in EUR/JPY and put EUR under pressure. EUR/USD hit 1.4322 around the NYSE close but then Fresh waves of US hedge funds/models, big Europeans, UK clearers sales in EUR, GBP, AUD, NZD – possibly as funds unwind expectations that Fed will have an emergency rate cut tonight- pressured the pair to 1.4200. Volatile moves from the last few days made the charts to look very ugly. The major levels are far away from the current price but culd be reached faster than usual. Today important data releases and events could affect the forex market – UK CPI (8:30 GMT), ZEW Index (9:00 GMT), US CPI (12:30 GMT), FOMC Rate decision (18:15 GMT). Support is @ 1.4180, 1.4085 and 1.3970. Resistance is @ 1.4320 and 1.4480.

A lot of US banking news combined with very thin liquidity (Japan, HK, China and S, Korea are off) resulted in a volatile Asin session. EUR/USD gapped up on the open and rallied to 1.4480. Lehman Brothers announced it is filing for Chapter 11 Bankruptcy. Lehman says none of broker – dealer subsidiaries or other subsidiaries of parent will be included in Chapter 11 filing and all will continue to operate. This was found a tad positive by the market and EUR retreated from the highs now trading around 1.3380/90. As we wrote earlier a correction in EUR/USD is underway. Next area of resistance is 1.4490/505, then 1.4570 and 1.4810. Support is @ 1.4290 and 1.4230. Oil is below $100 and this could weigh on the Euro.

Probably the long awaited correction in EUR/USD has begun. On the daily candlesticks charts were formed a hammer reversal pattern, followed by e white candle with large body confirming the beginning of the retracement. The question is if this is just a correction of the new downtrend or a continuation of the previous uptrend? No one knows the answer, except the guys with big money who manipulate the market. Probable targets of the correction are 1.4386/430 and 1.4570. If the market goes above 1.4910/50 the former uptrend is intact again. Support is @ 1.4130, 1.4040 and 1.3880/50.

EUR/USD posted new low yesterday but the a short squeeze in EUR/JPY caused a rally in the major pair above 1.4000. The forex market is still wondering if the USD strenght should continue or a correction should follow. Economic data from US are not positive but the rest of the world may be in much worse state. If EUR/USD could break above 1.4040/50 we may see the beginnign of the long awaited corection. Next upside targets are 1.4180 and 1.4385. Support is @ 1.3970, 1.3880/50.