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This FAQ addresses Bollinger Bands, GroupPower.com, EquityTrader.com, FundsTrader.com, BollingerOnBollingerBands.com, PatternPower.com, BBForex.com, financial analysis and relativity--at least as it pertains to investing.

Author: John Bollinger, CFA, CMT

The home of this document is http://www.BollingerBands.com/faq/

Contributions are most welcome. Please submit them in Q&A form to BBands@BollingerBands.com

Version 0.8

Last updated: 2 July 2012

Entire contents © 2011 by John Bollinger and Bollinger Capital Management


Contents

Where can I find out about Bollinger Bands?

The best place is the book "Bollinger On Bollinger Bands."

http://www.bollingerbands.com/products/book.php

There is a short tutorial here:

http://www.bollingerbands.com/services/bb/intro.php

There is a DVD of a two-day seminar that parallels the book here:

http://www.bollingerbands.com/products/bbdvd.php

There is a more recent and advanced DVD here:

http://www.bollingerbands.com/products/dvd-2011.php

What are Bollinger Bands?

Bollinger Bands are tools used in technical analysis of securities prices.

Bollinger Bands are curves plotted in and around the price structure that define whether price is high or low on a relative basis.

Who created the Bollinger Bands?

Bollinger Bands were crated by John Bollinger, CFA, CMT.

When were the Bollinger Bands created?

Bollinger Bands were created in the early 1980s as a result of research into options and trading systems.

Why should I use Bollinger Bands?

To answer to the question: Are prices high or low on a relative basis?

Why would I want to know whether prices are high or low?

So you can come to rigorous investment decisions using indicators, trading systems and pattern recognition.

Why would I want to arrive at rigorous decisions?

Rigorous decisions can help to eliminate emotions from the investment process. Emotions are your worst enemy; they will cause you to sell at the lows and buy at the highs, the exact opposite of what most people want to do.

What are the default Bollinger Band parameters?

The default parameters for Bollinger Bands are a 20-period simple moving average of the daily closing price, plus and minus two standard deviations (sigma) of the data used in the average.

Upper BB = middle BB + 2 sigma
Middle BB = 20-day simple moving average of the close
Lower BB = middle BB - 2 sigma

Sigma = 20-day moving standard deviation of the close

Must I always use the close?

No, the typical price, (high+low+close)/3 and its variants are good choices too.

May I vary the parameters?

Yes indeed! You can and should vary the parameters to suit your circumstances. While we have found 20 days and two standard deviations to be useful in our practice, others have reported success with many different combinations.

Are there guidelines for varying the Bollinger Bands?

The following variations maintain containment at the same level achieved with the base parameters; approximately 90% of prices inside the bands:

50 days, 2.1 standard deviations.
10 days, 1.9 standard deviations.

What about 1.5 at 10 days and 2.5 at 50 days?

Those were the originally recommended parameters, but they are now obsolete.

Can Bollinger Bands be used on futures contracts, foreign exchange, etc.?

Although Bollinger Bands were developed for use on stocks, indices and futures, they are now widely used in the currency and many other financial markets.

Can Bollinger Bands be used on data other than daily data?

We use Bollinger Bands on daily, weekly, monthly, quarterly and yearly data.

Can Bollinger Bands be used on intra-day data?

Bollinger Bands are routinely used on everything from tick data, to 5-minute bars, 30-minute bars, hourly bars, etc.

One interesting application is 130 minute bars, which produces three bars per day for the regular NYSE hours.

Many intra-day traders shorten the number of periods and tighten the bands for intra-day use.

What is %b?

%b is an indicator derived from Bollinger Bands that portrays the position of the last trade within the bands.

The formula is (last - lower band) / (upper band - lower band).

%b evaluates to 1 at the upper band, 0.5 at the middle band and 0.0 at the lower band.
%b will be greater than 1.0 when price is above the upper band and less than 0.0 when price is below the lower band.

What is % b used for?

The primary uses of %b are in pattern recognition and the writing of trading systems.

What is BandWidth?

BandWidth is an indicator derived from Bollinger Bands that portrays the distance from the upper band to the lower band as a function of the average.

The formula is (upper band - lower band) / middle band.

The mathematically inclined will note that when using the default parameters BandWidth equals four times the 20-period coefficient of variation.

What is BandWidth used for?

The primary uses of BandWidth are identifying The Squeeze and diagnosing the beginnings and ends of trends.

What indicators are recommended for use with Bollinger Bands?

We recommend volume indicators such as Intraday Intensity or the Money Flow Index as they can give insight into supply and demand.

Any other technical indictors that suit your purpose can be tried.

Volume is not available for the instruments I trade. What should I do?

If you trade futures contracts where volume is reported a day late or currencies where reporting is non-existent, you'll have to get estimates or use something other than volume indicators. You can try Momentum, the Relative Strength Index or Stochastics to see if they are helpful in your situation. Volume is now available for many electronically traded contracts.

What is a tag of the Bollinger Bands?

A tag of the Bollinger Bands occurs when price touches the upper or lower band. A tag of the upper band is not a sell signal in and of itself, nor is a tag of the lower band a stand-alone buy signal.

Should I sell a tag of the upper band, or buy a tag of the lower band?

There are three primary types of signals generated at the bands:

  • Signals can occur as a result of pattern recognition, for example, a W-shaped bottom formation.
  • Signals can occur as a result of confirmation/non-confirmation of band tags by indicators, a popular example of this is a non-confirmed low.
  • Signals can occur from the shape and pattern of the bands themselves, for instance, The Squeeze.

Where can I learn more?

The book "Bollinger on Bollinger Bands" is the definitive guide. It can be ordered from www.BollingerBands.com or by calling 1-310-798-8855.

Are there web sites that feature Bollinger Bands?

The home page for Bollinger Bands is www.BollingerBands.com.

www.BollingerOnBollingerBands.com fully supports all the techniques and systems presented in the book including screening, charting, patterns and much more. You can use the shortcut www.BBands.com to get to it.

www.EquityTrader.com presents charts using Bollinger Bands plus a number of related tools and prescreened data.

www.BBForex.com presents Bollinger Band analytics for the foreign exchange markets.

Bollinger Bands are featured in most of the technical analysis software available for the PC, Mac or on the Internet.

What are the other indicators John Bollinger has created to use in addition to Bollinger Bands?

%b, Percent b (PB)™
%b (Percent b) was one of the first two indicators derived from Bollinger Bands. It employs a variation on the formula for Stochastics. %b depicts the location of the most recent close within the Bollinger Bands. At 1.0, the close is at the upper band, at 0.0 the close is at the lower band and at 0.5 the close is at the middle band. A %b reading of 1.1 means that you are above the upper band by 10% of the width of the bands. -0.2 means that you are below the lower band by 20% of the width of the bands. %b is a useful tool for identifying divergences, diagnosing tops and bottoms, and pattern recognition. %b is also used extensively in trading system construction. It is perfect for detecting when a new high or low is a new absolute extreme, but not a new extreme relative to the Bollinger Bands.

BBImpulse (BBI)™
BBImpulse is derived from %b. Its value is the periodic change of %b, so if %b was 0.45 this period and 0.20 last period the present value of BBImpulse is 0.25. Generally the market moves in the direction of the latest alerts and/or impulses except towards the end of a move where one can take advantage of exhaustion/reversal signals from this indicator. Ian Woodward employs BBImpulse for his Kahuna signals using key levels of 0.24 and 0.40. (See the description for the indicator Stochastic Impulse.)

BandWidth (BW)™
BandWidth was one of the first two indicators derived from Bollinger Bands. BandWidth depicts how wide the Bollinger Bands are as a function of the middle band. The formula is (upperBB − lowerBB) ÷ middleBB.

The most popular use of BandWidth is to identify The Squeeze, which is a 125-period low for the indicator, and it is very helpful in diagnosing the beginning of trends. The opposite of The Squeeze, The Bulge, is useful in diagnosing the end of trends.

BandWidth Delta (BWD)™
BandWidth Delta depicts the momentum of BandWidth and is useful in diagnosing the peaks and troughs in BandWidth as markers of potential trend changes. This indicator is especially useful when trying to analyze the potential for consolidations or reversals after large moves. You can think of BandWidth Delta as a magnifying glass for BandWidth.

%BandWidth, Percent BandWidth (PBW)™
%BandWidth (Percent BandWidth) uses the formula for Stochastics to normalize BandWidth as a function of its n-day look-back period. 125-periods is the default, but you may choose your own look-back period. 1.0 equals the highest BandWidth in the past n periods, while 0.0 equals the lowest BandWidth in the past n periods. If you use 125 as the look-back period, then 0.0 = The Squeeze and 1.0 = The Bulge. The interpretations are similar to BandWidth, but some find the normalized, or closed presentation more intuitive. %BandWidth, along with %b, are two primary building blocks for Bollinger Band trading systems.

BBTrend (BBT)™
BBTrend takes advantage of the ways in which Bollinger Bands of different lengths interact to determine whether the market is trending or not. Amongst commonly used technical indicators, Average Directional Movement Index (ADX) and Choppiness Index serve similar purposes. Unlike the traditional trend indicators, BBTrend combines directional information with the trend information. Readings below zero are indicative of negative trends and readings above zero indicate positive trends. The farther the reading away from zero the stronger the trend.

BBMomentum (BBM )™
BBMomentum measures price moves as a function of the width of the Bollinger Bands. BBMomentum's value is the n-period change in price divided by the upper band minus the lower band. A good starting value for n is half the length of the Bollinger Band calculation. So, if you are using 20-period Bollinger Bands, try 10 periods for BBMomentum. BBMomentum normalizes momentum using the width of the Bollinger Bands. In volatile times it takes a large change in price to create the same BBMomentum reading than a much smaller change would create in calm times. BBMomentum can be thought of as a form of volatility-normalized momentum and can be used the way any other momentum indicator is used.

BBIndex (BBX)™
BBIndex is a classic overbought/oversold indicator similar in application to the Commodity Channel Index (CCI). Indeed, it can be seen as a “modern” version of CCI. Match the period to the trend that you are trading, 20 is the default, and use ± 2.0 as the basic overbought/oversold reference levels with ± 3.0 as extreme levels. BBIndex is also a superb divergence tool, and as such is helpful in identifying the beginnings and ends of trends.

BBAccumulation (BBA)™
BBAccumulation combines three volume indicators, Accumulation-Distribution (AD), Intraday Intensity (II) and On Balance Volume (OBV) in a Bollinger Band framework. First the indicators are normalized with %b, then they are combined. OBV examines the periodic change, II examines the closing location in the periodic range and AD examines the relationship between the open and close to the periodic range. When normalized for comparability, taken together they give an excellent picture of the supply demand characteristics of a security.

BBPersist (BBP)™
BBPersist is simple, elegant counting application that counts highs above the upper Bollinger Band and lows below the lower Bollinger Band and nets them to create an indicator. BBPersist displays the balance between strength and weakness over time and is very helpful in diagnosing that difficult analytical problem, the walk up or down the bands.

BBStops (BBS)™
BBStops are an adaptation of the stops included in Welles Wilder's Parabolic Price Time System. These stops increment both with the passage of time and the progress of the trade. They start at an interval above/below the entry day as a function of Bollinger Envelopes and then progress automatically as time passes and as price changes. If the entry is a buy, BBStops start beneath entry at an interval determined by the lower Bollinger Envelope calculation. For a sell the interval is a value above the entry determined by the upper Bollinger Envelope calculation.

What are the Bollinger Band Indicators used for?

John Bollinger developed Bollinger Bands more than 25 years ago and in 2010 started work on an entire suite of Bollinger Band indicators. The goal was to apply the adaptive strength of Bollinger Bands to various technical analysis techniques to create a comprehensive suite of indicators that worked well together.

Where can I find the Bollinger Band suite of indicators?

Currently the new work is only available on John Bollingerís websites. The ten new indicators can be plotted on the charts on www.EquityTrader.com and www.BollingerOnBollingerBands.com (BBands.com) for US equities, and www.BBForex.com for the forex market.

What is the Capital Growth Letter?

The CGL is a monthly investment newsletter written by John Bollinger accompanied by a weekly hotline. It has been in publication since 1987 and is available online or via email. Subscription and access is via BollingerBands.com.

Each monthly issue provides John's latest analysis of the markets and covers in detail stocks, bonds, precious metals, commodities, the dollar and the international markets. There are charts, analysis and commentary on the markets plus timely investment recommendations. The newsletter is where John Bollinger publishes his latest work and indicators. Says Bollinger "My goal for the Capital Growth Letter is to not just to give investment advice, but to teach readers to analyze the market so they can make better investment decisions on themselves."

Every issue includes the following:

Opening Section
Features a core analysis and a discussion of our current investment environment. There are frequent tutorial pieces in this section.

The Investing Environment section presents a series of proprietary market models that focus on four areas: monetary, sentiment, valuation and trends.

Stocks Section
The stock section provides an overview of the US stock market and anticipated trends. Each issue includes a chart of a major US stock market index with Bollinger Bands. The other charts may illustrate our analysis or depict positions in the portfolio. Comments on industry group action can also be found here as well as updates on The Value Line Plan, a basic market timing system based on swings in the Value Line Geometric Index. The Value Line Plan utilizes weekly data and enters or exits the market each Friday based on a stop announced on the prior Monday via the Hotline.

International Section
This section contains our thoughts and analysis on the international scene along with investment recommendations. We view international investing as a very important part of a balanced portfolio.

Bond Section
This section provides an overview of the bond market and anticipated trends. Every issue includes a chart of US 10-year T-note yields with Bollinger Bands. Changes in the price and/or quantity of money and fiscal policy are considered not only for their impact on bonds, but also for their impact on stocks and the economy.

Collateral Coverage
Each issue also contains sections devoted to the energy market, precious metals, commodity prices and the dollar. Charts vary for these areas depending on the analysis presented. These areas are analyzed primarily to provide information for our primary investment process.

A chart of the CGL Commodity Composite is often included in the newsletter. This is a proprietary composite. The components are the Reuters, Moody's and CRB Industrial Commodity Indices. These are sometimes called spot commodity indices. The CGL Commodity Composite is equally-weighted index of the three.

Related Topics
Some issues contain a section called the Reading Rack for those who may be interested in books, articles or material for further exploration. There is an occasional section called Computer Corner that focuses on investment-related technology and software. View From the Beach presents John Bollinger's opinion piece. Finally there is a schedule of John Bollinger's appearances, seminars, etc.

Group Power
Pages 10 and 11 present a wide variety of data from www.GroupPower.com, our unique daily industry-group research product. Much of this data is not available elsewhere and is highly useful for both stock-market timing and stock selection

Sector Select ETF Portfolios
In addition to a core portfolio there are relative-strength driven portfolios consisting of exchange-traded funds—ETFs. These three portfolios, International, Style and Sector, are mostly mechanical. They use a cast-out relative-strength method.

Core Portfolio
In this section all outstanding recommendations are listed with appropriate supporting data.

What is GroupPower?

GroupPower is John Bollinger's market sector and industry group analysis product.

What is the underlying philosophy behind GroupPower?

Many studies have been conducted that decomposed the attributes of the return of stocks. These studies suggest that industry-group and market-sector factors are very important components of return. GroupPower was created to exploit that information.

What are industry groups?

Groups are agglomerations of companies in a similar line of business.

What are market sectors?

Market sectors are groups of industry groups with similar macro business characteristics.

What is the Market?

The Market is an equal-weighted index of all the components of the Group Power structure.

What does equal-weighted mean?

Equal weighted means that each component receives the same weight in analysis or index construction. This means that large stocks don't dominate the universe as they do in a capitalization-weighted index such as the S&P 500, or that high priced stocks don't dominate as they do in a price-weighted measure such as the Dow Jones Industrial Average.

All EquityTrader, FundsTrader and GroupPower calculations are equal weighted.

What are rational industry groups?

Rational groups are industry groups whose components have both a good fit in terms of business line and a good fit it terms of trading pattern. GroupPower uses rational industry groups and market sectors.

How many stocks, groups and sectors are in the GroupPower structure?

The structure is frequently revised to reflect changes in the market place. As of September 2010 there were 15 market sectors, 203 industry groups, and over 4,400 stocks in GroupPower.

How often is the GroupPower structure updated?

Routine maintenance occurs as needed.

The structure is overhauled once a year.

What are the non-correlated groups?

They hold the stocks that would normally be in the groups in that sector, but whose trading pattern does not correlate to the group to which they fit fundamentally. Sometimes called holding bins, there is one of these special groups per sector.

What is the GroupPower update methodology?

First, stocks with poor fits to their groups are moved to the holding bins in the sectors to which the groups belong. Next, stocks in the holding bins with good fits to appropriate groups are moved to those groups. Then the complete structure is recalculated and the entire process is repeated until the structure stabilizes.

What stocks are included in GroupPower?

Most liquid issues traded in the United States, plus other stocks of interest.

In each revision, we eliminate stocks that have become illiquid from the structure, as they are a source of noise, not signal.

How is the GroupPower structure organized?

The initial structure was created in a traditional top-down manner focusing on the dynamics of the modern economy.

The structure was then tested for mathematical fit and reorganized to assure the tightest possible fit.

Why are some stocks in holding bins rather than in the groups to which they "obviously" belong?

When a stock has a poor mathematical fit to its 'proper' group it introduces noise into the structure. Since the goal of the structure is to provide high quality trading tools we wish to minimize the noise.

What is the GroupPower Arms Index?

The Arms Index portrays the balance between advancing groups and declining groups as a function of volume.

The formula is (number of advancing groups - number of declining groups) / (volume in advancing groups - volume in declining groups)

1.0 is neutral, everything is in balance.
Numbers above 1 reflect a downside bias and numbers below one reflect an upside bias.

Due to the ratios employed, the index is distributed in a semi-log manner. For example 2.0, not 1.5, is the opposite of 0.5.

What is GroupPower Open 10-day Arms Index?

It is an Arms Index computed using 10-day simple moving averages of the components.

It is useful for identifying extremes in the market.

What is the High-Low Index?

The HLI is the 10-day average of 52-week highs / (52-week highs + 52-week lows)

Swings upward from low levels are thought to be bullish and swings down from high levels are thought to be bearish.

What is the High Low Logic Index?

The HLLI is the smoothed minimum of new highs or lows divided by issues traded.

It typically rises near the end of sustained trends indicating increasing risk.

What are Early Warnings?

Early Warnings are groups making either 13- or 26-week new highs or lows, but not yet 52-week new highs or lows.

Early warnings are often good indications of groups that are in the early stages strengthening or weakening.

What do the "Action" tables portray?

They portray the largest changes in the GroupPower short-, intermediate- and long-term momentum rankings.

These tables depict where the money is flowing on any given day.

What is the Money Flow used in Group Power?

It is a volume indicator called Bostian's Intraday Intensity.

(2*close-high-low)/(high-low)*volume

What is Persistency of Money Flow?

PSMF, $$ on the reports, is the percentage of days in the past six months on which Money Flow was positive.

What are the momentum numbers used in GroupPower?

Short-term momentum is a one-month momentum calculation.
Intermediate-term momentum is a one-quarter momentum calculation.
Long-term momentum is a six-month momentum calculation.

All the momentum calculations are front-weighted.

What do -5, -10 and -20 mean on the Momentum report?

They refer to 5, 10 and 20 days ago. The first number in the row is the most recent momentum number, the next number is the one-day change in momentum, next is momentum from 5 days ago...

How do I compare the momentum data?

Groups that have sequentially increasing momentum numbers are strengthening and vice versa.

Groups with extremely high or very low momentum numbers are often at unsustainable peaks or troughs.

Are the short, intermediate and long-term momentum numbers directly comparable?

Yes, all the momentum numbers are stated in the same units.

What do the flags on the reports mean?

> Means Money Flow has risen in each of the past four weeks.
< Means Money Flow has fallen in each of the past four weeks.
1 Means a 13-week high
2 Means a 26-week high
$ Means a 52-week high
-1 Means a 13-week low
-2 Means a 26-week low
# Means a 52-week low

What is the "Gear" report?

A list of groups with very strong correlations to the market. These are the groups are in sync with the market.

A list of groups with poor or negative correlations to market. These groups should be traded on their own, without reference to market trends.

What are parents?

A stock's parent is the group to which it belongs.
A group's parent is the sector to which it belongs.
A sector's parent is the market.

What are siblings?

A stock's siblings are the other stocks in its group.
A group's siblings are the other groups in its sector.
A sector's siblings are the other sectors in the market.

What are children?

A group's children are its member stocks.
A sector's children are its member groups.
A market's children are its members sectors.

How do you use GroupPower?

The aspect of GroupPower I am most interested in is sustained increases in momentum that occur from low levels and sustained decreases in momentum that occur from high levels.

To help identify candidates the short-term momentum list is broken into quartiles. Groups with steadily increasing momentum in the second and third quartiles are of particular interest.

What is www.BollingerOnBollingerBands.com?

BoBB is a web site dedicated to completely supporting the tools and techniques presented in the book, Bollinger on Bollinger Bands, and a variety of related, complimentary and new techniques.

What tools does BoBB provide?

Charting, pre-screened lists for methods I, II, III and IV, user defined screens, navigation via the GroupPower structure, portfolios, M and W pattern categorization and seasonal studies

What is Method IV? I can't find it in the book.

Method IV was developed after the book was published. It looks for stocks that break-out of the bands and then confirm their strength or weakness.

Where can I find out about the indicators in the charting section?

Click on the name of the indicator.

What is the Edge?

The Edge is a section of BoBB that is designed to give you an edge in entering and exiting the market.

The Edge depicts performance by the day of the week.

The Edge also depicts performance around the turn of the month and around option expiration days.

The Edge reports the performance after a string of days with specific gain and loss sequences like four down days in a row or three up days followed by a fall…

The idea is to give you a bit of help in timing your entrances and exits.

What are the Alphier Indicators?

The ideas for the Alphier indicators were developed by the late Jim Alphier who passed suddenly taking the bulk of his work to the grave with him. The versions presented here were taught to us by Fred Wynia.
The most important indicator in the series is Expectations and we have programmed a series of Fred's buy and sell rules right on the indicator chart.

Two more of Jim Alphier's indicators that were originally presented in Barron's, Urgent Selling and Prolonged Liquidation, are available at our market timing site, www.MarketTechncian.com.

What are PowerShifts and Pivots?

PowerShifts highlight potentially important reversal points in the market. Pivots highlight potentially important reaction points in the market, usually in the wake of PowerShifts. Both are unique to the BoBB and appear on the charts and in the lists. They can also be screened for.

Where can I find out more about the features of BoBB?

In the Support section under Site Help there is a link for Video Tutorials that walk you through each section of the site and explain all the features. The Support section also includes write-ups explaining the four trading methods in detail, plus an explanation about PowerShifts and Pivots. Also throughout the site you will see Note. If you click on the icon a window will open explaining that particular feature.

What is www.EquityTrader.com?

EquityTrader is a web site that presents a number of tools and techniques for assessing stocks, the most important of which are the Performance and Potential ratings.

What is the Performance rating?

The Performance rating is a risk-adjusted, front-weighted relative strength measure that considers the past two years of data.
The risk adjustment is carried out by dividing the rating by negative beta if negative beta is greater than one.

What is alpha?

Alpha is the unique return for each stock that cannot be explained by market action.

What is beta?

Beta is a measure of a stock's responsiveness to the market. A beta of one suggests that a stock will advance 10% if the market advances by 10%; a beta of 2.00 suggests that the stock will advance by 20% and a beta of 0.5 suggests that the stock will advance by 5%.

How are alphas and betas calculated?

Alpha and beta are the result of a linear regression of the stock's returns versus the market's returns.

What are negative and positive alphas and betas?

Negative and positive alphas and betas acknowledge the fact that stocks behave differently in rallies and declines. In order to calculate them we decompose the market's returns into positive and negative series and then calculate separate alphas and betas for each series.

What is the Potential Rating?

The potential rating is the output of a fuzzy logic model that assesses a series of factors that are known to have impacts on the future performance of a stock.

What factors are considered in the Potential rating?

Relative strength
Alphas and betas
Group strength
Money Flow (Intraday Intensity)
On Balance Volume
Earnings growth and surprises via the Zacks model
Overbought/oversold
Rate of ascent/descent

Is reverse sensing used in the Potential model?

Yes, reverse sensing is used to prevent the model from being too bullish at highs or too bearish at lows.

What is reverse sensing?

Reverse sensing is the derating of positive or negative factors as they move to extremes.

How are the model ratings presented?

The ratings are on a scale of one five with one being best.

1 = two green lights
2 = one green and one yellow light
3 = two yellow lights
4 = one yellow and one red light
5 = two red lights

How may I assess the Potential model?

The Potential ratings work differently for different issues. We present a history of the Potential ratings for each stock in histogram format on a bar between the main chart and the indicator clip. This allows you to assess the utility of the model for that stock.

What are PowerShifts?

PowerShifts are signals that highlight potential tops and bottoms. Positive PowerShifts occur when a stock becomes severely oversold and then generates enough strength to potentially break the back of the decline. Negative PowerShifts are exactly the opposite.

How are PowerShifts displayed?

Positive PowerShifts are indicated by green, upward-pointing wedges under the bar for the day they on which were triggered.
Negative PowerShifts are indicated by red, downward-pointing, wedges over the bar for the day on which they were triggered.

What are Pivots?

Pivots are a variation of PowerShifts that often occur after an important high or low when the first leg of the new move is exhausted.

For example, negative pivots require a similar degree of oversold to negative PowerShifts, with a demonstration of weakness instead of strength.

How are Pivots displayed?

Positive Pivots are indicated by a + under the bar for the day on which they were triggered.
Negative Pivots are indicated by a - over the bar for the day on which they were triggered.

Are there lists of PowerShifts available?

Yes, PowerShift and Pivot lists are available in the Professional section of EquityTrader.

What are PowerShift alerts?

PowerShift alerts are triggered on an intra-day basis when the conditions for a PowerShift are met. These alerts are e-mailed to ET Pro subscribers when they are triggered.

Why don't the PowerShift alerts match up with the lists?

The alerts are just that, alerts. If a stock triggers an alert, but fails to close at the level necessary for a signal the PowerShift will not occur even though the alert was triggered on an intra-day basis.

What is normalized volume?

Normalized volume is volume divided by its 50-day moving average.

The formula is volume / 50-day simple moving average of volume* 100.

Why are some volume bars colored green and others red?

Volume bars are color coded to the day's action, green on up days, red on down days.

What are the features of ET Pro?

Trading signal alerts, Bollinger Bands patterns and screens, customized screening with 15 variables, comprehensive ratings, the ability to program your own indicators and run them on EquityTrader charts using BBScript, charts with more than 30 technical indicators, TrendLines, and much more.

Why are there two charting systems?

We took advantage of the latest technology to dramatically increase the power of our charts. At the same time we preserved the original charting package for traditionalists.

What is www.FundsTrader.com?

FundsTrader is a mutual-fund-analysis web site that takes advantage of EquityTrader analytics.

What is the philosophy behind FundsTrader?

Mutual funds are hard to analyze because they are priced only once a day, and then only the closing net asset value is provided. FundsTrader addresses this problem by correlating mutual funds to individual stocks, groups and indices from the EquityTrader universe and then using the EquityTrader analysis of those items to create an analysis of the funds.

What is FundsTrader's most unique feature?

During the trading day, FundsTrader projects the closing values for all of the mutual funds in its universe. This allows investors to assess what they might have to pay for or what they may get when they transact in a mutual fund without having to wait for the closing NAV. It also allows an assessment of the likelihood of a fund triggering a buy or sell signal, information that permits transacting a day early.

How are the intra-day projections arrived at?

The projected change is the average percent change of the ten most highly correlated items from EquityTrader.

Click on the Potential light bar to see this report.

These are not the stocks reported to be in the funds, but the stocks most correlated with the funds.

Does FundsTrader use GroupPower as EquityTrader does?

FundsTrader uses it own version of GroupPower based on a universe of mutual funds. You can explore this structure on the Structure tab.

What is PatternPower?

PatternPower is a web site dedicated to analyzing price patterns via a series of five-point patterns in the shape of Ms & Ws.

Where did M&W patterns originally come from?

Five point patterns were originally suggested by Robert A. Levy in "The Predictive Significance of Five Point Patterns," The Journal of Business, July 1971.

The categorization we use in PatternPower was created by Arthur Merrill and published in "M&W Wave Patterns," 3rd edition, Chappaqua Press, 1983.

How are the minimum swings of the patterns determined?

A variable mechanical filter based on historical point and figure box size methodologies and the expected volatility of a stock at a given price level is used to determine the reversal value necessary to declare one swing over and another, opposite, swing underway. For reference see Abe Cohen on point and figure charting and Fredrick R. Macauley on the volatility of stocks.

How are the stop levels set?

On a positive swing, the stop is the highest high achieved during the swing less the filter value. Exactly the opposite is true of a negative swing.

How are the PatternPower projections arrived at?

The volatility of the stock is decomposed into positive and negative components and front-weighted averages of each are calculated. The positive average is used to project the potential for each positive swing and the negative average is used to project negative swings.

How may I assess the accuracy of PatternPower?

A link to a full record for each stock is available on the analysis page.

Can I screen for my own criteria?

There is an extensive screening section in PatternPower that allows you to screen for a great number of variables.

There are also extensive prescreened lists.

What is BBforex?

BBforex is a site dedicated to the use of Bollinger Bands analysis for foreign exchange trading.

What are the analytics provided on BBForex?

  • Charts: Customizable forex charts with Bollinger Bands and Bollinger Envelopes and a wide variety of technical indicators. Access to ongoing forex news as it occurs on the chart.

  • Multiple Currency Charts: Customizable interactive chart for comparing multiple currencies relative to a common reference.

  • Multiple Currency 3D Model: Our unique patent-pending interactive 3D model compares percentage changes to your choice of multiple forex currencies to one common reference. This application is unique to BBForex.

  • TrendLines: On Advanced Charts, these interactive technical analysis tools can be created and customized to suit your needs and preferences.

  • Lists: Two trading methods from John Bollinger's book "Bollinger on Bollinger Bands" applied to the forex markets, with Forex pairs that meet the criteria for each of the trading approaches, updated continuously.

  • Forex Grid: Customizable currency grid with miniature charts that pop up as you float the cursor over the grid. This grid lets you see at a glance the relationships of all the currency pairs that are important to you. Updated continuously with latest forex rates.

  • Portfolio: A personalized forex portfolio area so you can review how your holdings are doing at a glance.

  • Programming your own indicators: We built a BBScript editor on top of our existing web platforms so you can program your own ideas and load the data and display it on BBForex charts. To learn more please see the FAQ for BBScript.

What is Technical Analysis?

Though the definition varies from source to source, basically TA is the study of the markets and the psychology of the participants.

A strict definition from Dan Chesler, CMT, says "TA is the forecasting of the markets through the study and analysis of data generated from the buying and sell of tradables."

An inclusive definition from John Carder, CMT, says: "Technical analysis is the study of the psychology of the markets."

From a different perspective, from Paul Desmond, CMT, says: "Technical Analysis is the study of the forces of Supply and Demand as reflected in the buying and selling of securities market participants."

My own view is that technical analysis involves the study of price and volume data to facilitate the making of rigorous investment decisions.

What is fundamental analysis?

Fundamental analysis is aimed at determining the correct value of a stock by analyzing the company's books and related macro data. The goal is to find and take advantage of mispriced securities.

What is the difference between technical and fundamental analysis?

Technicians believe that the markets are quite efficient at impounding data and news and are therefore the best source of analytical data. In essence, technicians believe that the market is right.
Fundamentalists believe that they can gain an advantage by analyzing non-market data. In essence, they believe that their analysis is right and the market price can be wrong.

What is Rational Analysis?

Rational Analysis is the juncture of the set of technical and fundamental analysis. Increasingly Rational Analysis is the discipline of choice.

How can I improve my trading/investing?

The most important issue is eliminating emotion from the investing process. For most people this means employing a rigorous selection mechanism and disciplined portfolio management.

Mechanically there are two dimensions that can be worked on, the number of winners versus losers and the size of the winners versus losers. You don't need to make big improvements; small improvements in these key relationships have big impacts on returns.

Finally, the real key to success is discipline!

What is relativity?

Relativity is a fairly simple concept, despite its heroic status. It states that things do not stand alone; that they do not exist in a vacuum. Rather all things exist in relationship to one another and it is the relationships that are important.

What has relativity to do with investing?

The traditional, absolute framework does not serve well. Such a framework makes comparisons hard and often breaks down in the face of changing circumstances. In order to be good investors or traders we need a more flexible, adaptive approach; an approach that fits the times.

What tools can I use to implement a relative approach?

Relative strength is perhaps the oldest relative tool.

Normalized volume allows one to define volume as high or low and compare volume between issues.

Bollinger Bands provide a definition of high and low on a relative basis.

%b tells us where we are in the bands on a relative basis.

BandWidth allows comparison of volatility from issue to issue and time to time.

Volume indicators may allow comparisons from issue to issue and time to time.

There are many more...

What is BBScript?

BBScript is a simple programming language at the same level as Microsoft Excel in terms of complexity and ease of learning. It has its own website that is the online manual at BBScript.net.

How is BBScript used?

BBScript allows traders to program almost anything. It can be used to build any of the classic Bollinger Band indicators like %B or BandWidth. At BBScript.net there is a lot of sample code for indicators, but most importantly, traders can build their own indicators. Many people like to play around with different types of smoothing, for example. They're unhappy with a simple moving average or they have problems with the exponential moving average so they want to create different types of smoothing.

Is BBScript easy to learn?

BBScript has an easy English-like interface that allows technically-oriented analysts to realize their ideas without having to learn a programming language. There's no having to learn Pascal or Basic or Easy Language. This is a language you mostly already know. And it is web basedóno PC software required.

Where can the BBScript programs be run?

We built a BBScript editor on top of our existing web platforms so users can program their ideas on top of our charts, using the chart engine itself to load the data and to display it. So EquityTrader.com and BBForex.com users can program and test their own indicators right on the existing interactive charts.

Is there any support available for BBScript?

At www.BBScript.net there is a message board/forum for users to share ideas and code. We also monitor the board to help with code and answer questions.


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