Über die Autorin bzw. den Autor

John Bollinger is president and founder of Bollinger Capital Management, an investment management company that provides technically driven money management services to individuals, corporations, trusts, and retirement plans. Bollinger publishes Capital Growth Letter and provides weekly commentary and analysis on CNBC, and was for years the chief market analyst on Financial News Network. He is both a frequent contributor as well as a featured expert for publications including The Wall Street Journal, Investor's Business Daily, Barron's, Technical Analysis of Stocks and Commodities, The New York Times, Los Angeles Times, and USA Today.

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"All in all, Bollinger on Bollinger Bands is a gem. ...within 10 minutes of opening it, it went on my list of the five best technical analysis books ever." - Active Trader

The First Comprehensive Traders' Guide to Using Bollinger Bands­­from the Man Who Created Them

Includes handy Bollinger Bands reference card

Over the past two decades, thousands of veteran traders have come to view Bollinger Bands as the most representative­­and reliable­­tool for assessing expected price action. Now, in the long-anticipated Bollinger on Bollinger Bands, John Bollinger himself explains how to use this extraordinary technique to effectively compare price and indicator movements.

Traders can look to this techniques-oriented book for hundreds of valuable insights, including:

• Analysis of the primary indicators derived from Bollinger Bands­­%b and BandWidth
• How traders can use Bollinger Bands to work with­­instead of against­­commonly encountered trading patterns
• Strategic use of Bollinger Bands in short-, mid-, and long-term trading programs
• Three trading systems based on Bollinger Bands

The essence of successful investing is to determine when a stock's price is too high or too low and then act accordingly. While John Bollinger would be the first to argue that no techniques exist for definitively determining these levels, Bollinger on Bollinger Bands presents an insider's examination of the one tool that­­if its widespread popularity is an accurate judge of its effectiveness­­comes closer than anything else. Concise yet comprehensive, it is one of today's truly indispensable investment guidebooks.

"The purpose of this book is to help you avoid many of the common traps investors get caught in, including the buy_low, sell-high trap, where the investor buys only to watch the stock continue downward or sells only to watch the stock continue upward. Here, the traditional, emotional approach to the markets is replaced with a relative framework within which prices can be evaluated in a rigorous manner leading to a series of rational investment decisions without reference to absolute truths. "
­­From the Introduction

In the 1970s, market newcomer John Bollinger couldn't find a system of investment analysis to fit his belief that all market events exist only in relation to one another and that there are no absolutes. So he created his own.

That approach­­Rational Analysis­­led to the establishment of Bollinger Bands and ensured Bollinger's spot in investment analysis history. Now, in Bollinger on Bollinger Bands, John Bollinger explains the market conditions that led to his initial discovery, and gives readers the inside story of the development and refinement of Bollinger Bands. He then goes on to present a relative decision framework built around Rational Analysis and Bollinger Bands­­an extraordinarily powerful combination of technical and fundamental analysis that answers the question of whether prices are too high or too low for virtually any security or market environment.

By understanding how to incorporate Bollinger's techniques into their own investment strategy, investors will greatly increase their ability to ignore often-costly emotions and arrive at rational decisions supported by both the facts and the underlying market environment. Bollinger on Bollinger Bands provides:

• The first authoritative examination of this revolutionary technical analysis tool
• Three simple systems for implementing Bollinger Bands
• Innovative methods for clarifying patterns­­and analyzing time frames and moving averages

The key to effective investment analysis is to­­as much as possible­­eliminate emotion and approach each trade on its technical and fundamental merits alone. Since their introduction, few analytical techniques have helped investors do this better or more consistently than Bollinger Bands. Bollinger on Bollinger Bands provides tips, guidelines, and rules for incorporating the bands into virtually any investment strategy. It is a watershed book, written by the only man truly qualified to claim a comprehensive knowledge of the topic­­John Bollinger himself.

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BOLLINGER ON BOLLINGER BANDS

McGraw-Hill

Contents

Chapter One

Over 80 years ago, the physicist Albert Einstein introduced his concept of relativity. At its core, relativity suggested that all things existed only in relation to one another. The inevitable conclusion is that nothing stands alone—there are no absolutes. For there to be black there must be white; fast exists only in relation to slow; a high cannot exist without a low for reference; etc. Einstein applied his theories to physics and in doing so lost a wider audience to whom those theories might have appealed. However, others such as the philosopher Bertrand Russell, were at work extending similar ideas beyond physics.

In a serialized form of his book [The ABC of Relativity] that appeared in The Nation during 1925, Russell expressed the belief that once people had become used to the idea of relativity it would change the way they thought: people would work with greater abstraction and would replace old absolute laws with relative concepts. This has certainly happened in the world of science but the absorption of relativity into popular culture has done little to change the way most people think, simply because very few have got used to relativity or understand it in the least.

At about the same time Einstein was starting his work, Oliver Wendell Holmes, Jr., a U.S. Supreme Court justice, was engaged in pushing our nation's system of justice in the direction of relativity. He suggested that the courts could not determine absolute truth. They could only judge the relative merits of the competing claims before them, and they could not do so in an absolutist framework, but only in a framework relevant to society. Early in his career Holmes stated:

The law embodies the story of a nation's development through many centuries, and it cannot be dealt with as if it contained only the axioms and corollaries of a book of mathematics. In order to know what it is, we must know what it has been, and what it tends to become.

The work of Einstein and Holmes didn't stand alone. Their focus was an indication of an emerging trend within society. Since the world was starting to become more complex as the nineteenth century drew to a close, it was widely realized that the absolute truths that had governed the affairs of people would no longer serve, that a relative framework would be needed if progress were to continue—and so it is with the markets.

Such ideas are humble in their essence. They recognize our limits. They reflect Eastern rather than Western philosophy. The goal of the perfect approach to investing is just that, a goal. We may approach it, but it always will elude our grasp. Indeed, there is no perfect system. We can only do as well as we can within our limitations, at the urging of our potential.

Benoît Mandelbrot discovered nonlinear behavior in cotton prices in his early research into chaos. Others have followed who suggested that financial systems are in fact extremely complex, so complex that they exhibit hard-to-predict behavior similar to the best-known complex system, the weather. As systems become more complex, traditional linear analytical tools fail, and it becomes ever harder to understand them. The only tools that serve to help understand complex systems are relative tools.

It is not the purpose of this book to plumb the depths of the arguments, pro or con, regarding these matters. Rather, we accept the weight of the evidence that prices are not distributed normally and markets are not the simple systems that most people think they are. Our base assumption is that the markets are systems of increasing complexity that are ever harder to master.

The old saw suggests that in order to make money in the market, you must buy low and sell high—or vice versa. As the markets have become more volatile and the patterns more complex, this has become increasingly harder to do. There is a fable from the trading pits in Chicago where the most active of the world's futures contracts are traded. It suggests there is a god who rules the pits. This god has but two rules: One, you may buy the bottom tick—once in your life. Two, you may sell the top tick—again, once in your life. Of course, by implication you are free to do the opposite as often as you would like.

The purpose of this book is to help you avoid many of the common traps investors get caught in, including the buy-low trap where the investor buys only to watch the stock continue downward, or the sell-high trap, where the investor sells only to watch the stock continue upward. Here, the traditional, emotional approach to the markets is replaced with a relative framework within which prices can be evaluated in a rigorous manner leading to a series of rational investment decisions without reference to absolute truths. We may buy low, or sell high, but if we do so, we will do so only in a relative sense. References to absolutes will be minimized. The definition of high will be set as the upper trading band. The definition of low will be set as the lower trading band. In addition, there will be a number of suggestions to help you tune this framework to your individual preferences and adjust it to reflect your personal risk-reward criteria.

Part I starts with this chapter, the introduction. Then, in Chapter 2, you'll read about the raw materials available to the analyst. Next in Chapter 3, you'll learn how to select the proper time frames for your analysis and how to choose the correct length and width for Bollinger Bands. In a more philosophical vein, Chapter 4 looks at the contrasting approaches of continuous advice versus the process of locating setups that offer superior risk-reward opportunities. Part I concludes with a discourse, in Chapter 5, on how to deploy successfully the ideas you will read about in this book.

Part II covers the technical details of Bollinger Bands. It begins with Chapter 6, on the history of trading bands (and in Chapter 20 in Part IV we reprise the oldest trading system known to us based on trading bands). Chapter 7, which describes the construction of Bollinger Bands, follows next. Chapter 8 is devoted to a discussion of the indicators that are derived from Bollinger Bands: %b, a method of mathematically determining whether we are high or low, and BandWidth, a measure of volatility. We close Part II with Chapter 9, which discusses volatility cycles, surveys some of the academic ideas that support the concept of Bollinger Bands, and reviews the relevant statistical issues.

If you are not interested in knowing the details behind the tools, you may want to skip Part II and go straight to Part III, where the discussion of how to use Bollinger Bands begins. While Parts III and IV build on the foundation laid out in the first two parts, you can read them independently.

Part III explains the basic use of Bollinger Bands. It starts with Chapters 10 and 11 on pattern recognition and introduces Arthur Merrill's M and W pattern categorization. Then Chapters 12 and 13 tackle the use of Bollinger Bands to clarify the most common trading patterns, with W bottoms covered in Chapter 12, and M tops explored in Chapter...