PRODUCT REVIEW
Bollinger On Bollinger Bands:
The Seminar
by David Penn
For a free copy of Technical Analysis, of STOCKS & COMMODITIES, click here.
 |
Bollinger On Bollinger Bands: The Seminar
Bollinger Capital
Management, Inc.
PO Box 3358
Manhattan Beach, CA 90266
Phone: 310 798-8855, 800 888-8400
Fax: 310 798-8858
E-mail: BBands@ BollingerBands.com
Internet: www.BollingerBands.com
Product: Technical analysis seminar on DVD
Requirements: DVD player
Price: $495 |
by David Penn
There are two reasons to buy John Bollinger's
"Bollinger On Bollinger Bands: The Seminar" course, now available as a
pair of DVD-ROMs. The first reason is simply to understand more about the
use of channels - Bollinger Bands in particular, though John Bollinger
spends a significant amount of time putting Bollinger Bands in the context
of the broader use of channels in technical analysis, from Keltner and
Donchian channels to percentage bands.
The second reason is to better learn how indicators work, how they are
built, where their flaws lie, and how indicators can be used in different
combinations and in different situations (stocks versus commodities, intraday
trading versus long-term investment, and so on). Ironically, one of the
biggest "raps" on Bollinger Bands - that Bollinger Bands alone do not provide
a ready-made trading system - is one of the strengths of the course. Like
other widely used indicators that have stood the test of time, Bollinger
Bands are a powerful tool, even if they do not represent the entire toolbox.
No single indicator ever really does, and John Bollinger's humility on
this point is a perfect complement to an indicator that remains a powerful
interpreter of market volatility.
The "Bollinger On Bollinger Bands: The Seminar" package consists of
a pair of DVDs that represent a two-day presentation by John Bollinger
totaling more than nine hours of instruction and commentary. The package
also includes a pair of workbooks that feature presentation slides of charts,
graphs, and lists. These make it easier for those watching the DVD to follow
along. Included is an Excel spreadsheet (one on each DVD) with all of the
various formulas used in the presentation.
ESSENTIALLY BOLLINGER
The first half of the seminar, called "The Essentials," is itself almost
worth the price of the whole package. Geared toward more than just the
fundamentals of Bollinger Band creation and use, the "Essentials" begins
with a discussion of some of the most basic concepts in technical charting
- from line, point and figure, candlestick, and bar charts to the role
of price data (open/high/low/close) in creating different types of charts
that communicate different types of information. Here in Session I, the
instruction - while basic - is likely to be refreshing to intermediate
and advanced technical analysts and chartists who appreciate the context
from which technical signals - however complex - are fundamentally derived.
Session I includes a thorough introduction to channels and bands, with
separate, smaller discussions on the development and use of Keltner channels,
Donchian channels, percentage bands, and moving average envelopes. Formulas
for creating all of these types of channels, bands, and envelopes are also
provided. Bollinger Bands themselves are introduced at the end of this
session.
FIGURE 1: Three of Bollinger's indicators come together to produce
strong signals in Clorox
Session II is where the construction of Bollinger Bands is explained (again,
with an ample supply of formulas). In addition to showing how to derive
the upper and lower bands of the Bollinger Band indicator mathematically,
Bollinger also shows how the use of different time frames and multiple
Bollinger Bands based on different parameters can reveal other telling
information about price volatility. John Bollinger uses Session II to introduce
indicators he has helped popularize - such as intraday intensity, %b, and
bandwidth - that work particularly well with Bollinger Bands. Pattern recognition
is the focus of the third session. Bollinger discusses not only some of
the more commonplace charting patterns such as head & shoulders patterns,
but also "W" bottoms and "M" tops. Again, Bollinger's presentation begins
with the basics, but as with the material in Session I, this approach makes
it all the easier to understand how pattern recognition can be a strong
interpretive accompaniment when used in concert with Bollinger Bands.
The final session in the first half of "The Essentials" deals with some
more specific implementations of Bollinger Bands in trading - particularly
what Bollinger refers to as walking the bands and the Squeeze.
"Walking the bands" refers to the tendency of prices in an uptrend to "tag"
and follow the upper Bollinger Band as it moves upward. The same sort of
phenomenon is true with downtrends; declining prices tag the lower Bollinger
Band and remain in contact with the band as it moves lower. According to
John Bollinger, the essential point of walking the bands is to remind those
using Bollinger Bands that a "tag" of the upper band "is not a sell," and
a "tag" of the lower band "is not a buy." This speaks directly to those
who incorrectly criticize Bollinger Bands for not providing more "straightforward"
buy/sell signals. Again, Bollinger Bands are a highly effective tool -
but their effectiveness is predicated on their deployment with other interpretive
indicators or price action (as in the case of pattern recognition strategies
used with Bollinger Bands).
However, there is a salve of sorts for those who demand the most out
of the standard Bollinger Band analysis. That salve is the Squeeze. The
Squeeze uses volatility - more directly, the relationship between high
volatility and low volatility - to help spot lower risk/higher reward opportunities
as price action develops over time. While the Squeeze is observable with
Bollinger Bands alone (the Squeeze referring to instances in which high
volatility shifts to low volatility and vice versa), other complementary
indicators (especially bandwidth, which essentially measures the distance
from the upper band to the lower band) make spotting potential Squeeze
plays all the more straightforward.
The Squeeze even has its own corollary, the Spread, which refers more
to plays in which high volatility is transitioning to low volatility. Formulas
and codes for programming the Squeeze into MetaStock coding language are
provided at the end of the session, as are further examples, including
other indicators such as parabolic stop and reverse.
ADVANCED BOLLINGER
The second half of the seminar is titled "Advanced Topics," which expands
on many of the concepts introduced in "The Essentials," such as intraday
intensity. Also divided into a number of separate sessions, "Advanced Topics"
deals with volume indicators and the use of Bollinger Bands in both trend-following
and reversal-based systems, as well as Bollinger Band deployment in daytrading
contexts. "Advanced Topics" also introduces a new concept known as Bollinger
Boxes, which involve the use of percentage or point filters on price action.
Many of the volume indicators discussed in Session I have been introduced
or discussed by John Bollinger in previous seminars. They include a variety
of powerful tools - on-balance volume, volume-price trend, negative and
positive volume indexes, intraday intensity, accumulation/distribution,
the money flow index, and volume-weighted moving average convergence/divergence
(MACD). These tools have been developed over the years by some widely known
(and some not-so-widely known) technical analysts like Joe Granville, David
Bostian, and Larry Williams. Much of John Bollinger's recent work has been
in the area of volume, and his efforts to find and improve upon volume
indicators as a complement to his work on price action through Bollinger
Bands are in full evidence here. As in the first half of the seminar, "Advanced
Topics" is replete with both examples and formulas (including MetaStock
code and TradeStation's EasyLanguage code).
FIGURE 2: Intraday intensity has become one of Bollinger's
choice volume indicators
Given the wealth of indicators presented in the seminar, it is not
at all surprising that Bollinger includes a primer on chart setup early
on in the "Advanced Topics" section. His admonition to "keep it simple"
is perhaps more common sense than anything else, but it is easy to see
how an eager technical analyst could quickly become overwhelmed by multiple
Bollinger Bands overlying a chart of price action on which the parabolic
stop and reverse and trendlines have been cast.
Bollinger points out that it is vital not to use two indicators that
essentially tell the same story. For example, in Session I, Bollinger puts
both intraday intensity and accumulation/distribution in the same volume
analysis category of "intraperiod structure." Thus, to use both intraday
intensity and accumulation/distribution on the same chart would be, at
best, a waste of resources and precious chart space.
Session II of the "Advanced Topics" seminar presents Bollinger Bands
in the context of trend-following systems. Again, John Bollinger defines
exactly what a trend-following system does and how its signals are derived.
What is especially fun about Bollinger's "starting with the basics" approach
to each section is that by the time he introduces the Bollinger Bands,
the student can begin to see how the bands might be used in a trend-following
fashion. Not only does this constant "context-setting" make the seminar
easy to understand, but the material is also more easily retained.
MetaStock and TradeStation code, as well as the basic mathematical formulas
for the trend-following methodology using Bollinger Bands, are provided
at the end of the session. Session III goes through the same sort of work
as Session II, with the emphasis switched from Bollinger Bands in a trend-following
methodology to Bollinger Bands in a reversal-system methodology. Again,
a basic but sound introduction to reversal system trading begins and contextualizes
the discussion.
Daytrading is the subject of Session IV and, while the use of Bollinger
Bands for intraday trading is not substantially different from their use
in daily or weekly time frames, Bollinger provides a few worthwhile notes
for those looking to use the bands in daytrading. Daytraders are encouraged
to pay particular attention to parameter lengths (perhaps shorter than
the traditional parameters), as well as the degree of standard deviation
(for example, using fewer standard deviations compared to the traditional
two). John Bollinger also provides a guide for daytraders based on whether
they are breakout daytraders or reversal-oriented daytraders. Interestingly,
Bollinger also includes some commentary and notes on the concept of seasonality
(for example, days of the week and time of day) and daytrading.
The last concept in the seminar is Bollinger Boxes. Bollinger Boxes
represent an effort to provide a meaningful price filter that does not,
in actuality, do the exact opposite of what a filter is supposed to do.
By this, I refer to John Bollinger's point that a filter needs to be able
to distinguish effectively between noise and true signals, so traders avoid
throwing the baby out with the bathwater. Ironically, volatility - which
is the mainstay of Bollinger Bands - is considered by John Bollinger to
be a "terrible filter." Instead, his work on Bollinger Boxes points to
more accurate filters being derived from percentages and price points themselves.
Further, Bollinger showed how variable filters in most cases outperformed
fixed price filters (such as Arthur Merrill's fixed 8% price filter).
Drawing from some of the basic concepts underlying point and figure
charting, Bollinger provides formulas and variable percentage sizes that
can help traders determine meaningful reversal points in a variety of charting
contexts - whether prices are as low as $4 or as high as $70.
BANDING IT ALL TOGETHER
One of the best things about Bollinger's presentation is the way he
expands upon notions and ideas that were often initially introduced in
other presentations. For example, it was interesting to see the extent
to which intraday intensity - a relative newcomer to John Bollinger's methodology
- was used more fully in the current DVD package. The Squeeze and bandwidth
are other examples of concepts that have been further developed since the
video presentation that accompanied the release of the book Bollinger
On Bollinger Bands. Chandelier stops, for example, are introduced here,
and are of particular interest to Bollinger - especially in their application
with trend-following approaches.
But even in his asides and casual comments, Bollinger provides insights
that too many of us overlook in our own analysis - such as why log charts
are best for stocks, but linear charts are best for futures, or the danger
of "double-counting" indicators, or the startlingly effective technique
of drawing trendlines above price action in uptrends and below price action
in downtrends.
"Bollinger On Bollinger Bands: The Seminar" is truly an impressive
package - all the more so because it seems guaranteed to appeal to a broad
range of market technicians. In some ways, to call the two-DVD set "Bollinger
On Bollinger Bands" is a bit misleading. While the creation and implementation
of Bollinger Bands are certainly at the heart of the instruction, the fact
that so many fields within technical analysis are accessed here - from
volume indicators and studies to trend-following methodologies - makes
"Bollinger On Bollinger Bands" a much more comprehensive product than its
name might imply.
From the initial discussion of the differences between line, bar, and
candlestick charts to the catalog of formulas with which to derive relatively
new indicators such as intraday intensity, %b, and bandwidth, John Bollinger's
sessions are casual, yet concise; occasionally sophisticated, but always
engaging. And the more you realize just how much information, market study,
and research are being conveyed with each slide that passes, the more you
want to call up a few charts of your favorite stocks and put your new insights
into action.
David Penn is a Staff Writer for Stocks & Commodities.
Article originally published in the May 2003 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2003, Technical Analysis, Inc.
