Foreword

John Bollinger is one of the people who really hooked me at FNN. His enthusiasm for the subject matter was contagious. His passion for learning more and more about markets and their history was inspiring. And his attention to detail raised the performance bar for the rest of us who were constantly struggling to keep up with his insatiable appetite for information. As John grew in his knowledge of the markets, his insights became increasingly useful to those around him. We were all impressed by the speed with which he assimilated market messages and explained their meaning to our audience.

It became increasingly clear to those of us who worked with John that he would one day make important contributions to the field of technical analysis. What once was really a Wall Street backwater had grown into a very respectable form of market analysis. Great technicians like Joe Granville, Robert Farrell, Edson Gould, Robert Prechter, and, of course, Charles Dow invented forms of market analysis that survive to this day. Indeed, all of Wall Streets major brokerage houses, money management firms, and big hedge funds employ technical analysts. All investors look constantly for an edge. Technical analysis is one of the tools that can provide that edge which means the difference between profit and loss.

As I said, many of Johns colleagues believed it was only a matter of time before John joined the ranks of important analysts who would change the way technical analysis was conducted and considered. And, indeed, he has.

Bollinger on Bollinger Bands is a must read for all students of the markets. It explains and expounds on an important contribution to technical analysis that John made while we were working together at the Financial News Network. When John first invented Bollinger Bands, I didnt understand the significance of his work. As I stated, it took me many years to understand fully the subject I was covering, and Johns work, at the time, was as arcane as any I had encountered. (Gladly that is no longer so, lest some of you worry that I am still unfamiliar with technical analysis.)

But like many great discoveries, Bollinger Bands are elegant in their simplicity. They define the parameters that accompany market gyrations. They set the boundaries for expectations, and they allow traders to understand the degree and speed with which markets can move. Bollinger Bands bend, yet they are made to be

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broken. It is when they are broken that they contain some of the most important information an investor could want. They are mathematical in their construction but, in pictures, they paint a thousand words that are invaluable for investors.

In short, Bollinger Bands are a technical tool which all investors, traders, and money managers should understand and utilize. And they are only one of several contributions to market analysis that their namesake has made and for which he will be remembered well.

Ron Insana CNBC June 2001

PREFACE

My first encounter with the stock market came as a child in the form of a bequest of a few shares of Fruhauf, a company that subsequently took a long time to go bankrupt. My second encounter came as a young man, in the late 1960s, while working for the Museum of the Media, an institution owned by three brothers whose father was a highly successful underwriter of hightech stocks at the time. High-tech stocks were all the rage, and my supervisor fell under the influence. Without really understanding the details, I instinctively knew something wasnt quite right. Next came the mid-1970s and an assessment of the damage done to my mother by holding mutual funds through a bear market. My final formative acquaintance came in the late 1970s when oil was "on its inevitable way to $50 or $100 barrel" and oil stocks were all the rage, especially small companies involved in deep drilling for gas in places like Oklahomas Anadarko basin. Needless to say, oil went down instead of up, and oil stocks in general were crushed, with many of the marginal stocks disappearing altogether.

There had to be a better way, and I looked for that better way for a long time without finding it. In the end I had to create it. It is called Rational Analysis. RA is the combination of technical analysis and fundamental analysis in a relative framework (Figure P.l). This book focuses on the primary RA tool, Bollinger Bands, which provide the relative framework; a subsequent-larger- volume will focus on Rational Analysis itself.

To define terms:

Technical Analysis: The study of market-related data as an aid to investment decision making