Accelerator Oscillator and Bollinger Bands
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When a band is plotted two standard deviations away from a simple moving average.
Bollinger Bands comprise of a center line and two price channels, one above and one below the center line.
The center line is actually an exponential moving average curve whereas the price channels which are above and below the center line are the standard deviations of stock being studied.
The band will contract as the price action of the issue will be bound into a tight trading pattern and the band will expand as the price action of an issue gets volatile.
When the price constantly touch the upper Bollinger Band, then it is an indication that we have an overbought position which might mean it is almost time to sell and when the price continually touch the lower band, it is assumed that the position is being oversold which means it might be time to buy.
When market becomes weak the upper and lower band start to narrow down and they come together and it looks like a bottleneck.
But when market expands, then the two bands start to widen up.
It is one of the best technical analysis tools for going long or short.
It is normally used to judge the extreme short term prices in a security.
When combined, the Accelerator Oscillator and Bollinger Bands provides reliable long or short signals.
Practice this strategy with several time frames until you find one that you are comfortable with.
And as always, no matter what the strategy tells you… the general rule of thumb is not to enter into a long position at the resistance line even if both indicators provide a buy signal.
Likewise for short position, it is not wise to enter into a short position at a major support level.
Of course, sometimes it might work out, but in general in trading, we are all about defense first and offense second.
Risk management comes first.
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