Bollinger Bend
Bollinger BendMr. Bollinger notes the following characteristics of Bollinger Bands.
1. Sharp price changes tend to occur after the bands tighten, as volatility lessens.
2. When prices move outside the bands, a continuation of the current trend is implied.
3. Bottoms and tops made outside the bands followed by bottoms and tops made inside the bands call for reversals in the trend.
4. A move that originates at one band tends to go all the way to the other band. This observation is useful when projecting price targets.
Stock price touches the upper Bollinger Band and RSI is greater than 70
==> A relative high in the stock price may have been reached and a downturn in stock price may occur in the near term.
==> Action: Sell stock outright, Buy puts , Sell deep ITM covered calls
Stock price touches the lower Bollinger Band and RSI is less than 30
==> A relative low in the stock price may have been reached and an upturn in stock price may occur in the near term.
==> Buy stock, Buy calls, Sell OTM covered calls
Stock price is at the upper Bollinger Band but RSI is less than 70
==> Inconclusive. Generally the current stock movement trend will continue.
==> Sell ATM covered calls
==>Establish some type of option spread
Stock price is at the lower Bollinger Band but RSI is greater than 30
==>Inconclusive. Generally the current stock movement trend will continue.
==> Sell ATM covered calls, Establish some type of option spread
Labels: TA Indicators
posted by mimosa @ Sunday, April 01, 2007
Comments: 0
