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14  Figure 3.2 Moving average, too long. Price crosses the average too late.  Figure 3.3 Moving average, too short. Price whipsaws back and forth across the average.
Part I: In the Beginning long enough to capture intermediate-term trend and volatility information.1 It turns out that as you vary the length of the moving average, you also need to vary the number of standard deviations used to plot the bands. A 20-period average provides a good base for most applications, but some series require longer or shorter time periods. A bandwidth of ±2 standard deviations provides an equally good starting point, but again we find the need for variation. Some variation is a function of average length, and some is a function of the width of the bands. Table 3.2 presents the parameters for daily charts that have been recommended over the years and have been deployed successfully by many traders. In doing the research for this book, we conducted a study that suggests that the need to vary the bands according to average length has diminished in todays marketplace. The study, and the parameters now recommended, is presented in Chapter 7 on construction in Part II. Interestingly enough, the Bollinger Band construction rules have held together pretty well over the years and across the markets. The original construction rules and parameters have been consistently effective, suggesting that they are quite robust. Further evidence of the robustness of the base parameters comes from the fact that small changes to the parameters do not produce large changes in the systems in which they are used. This insensitivity to small changes2 is very important in designing a system that will prove useful over time. It doesnt seem to make much difference what the bar types are-daily, 10 minute, etc. However, traders using very short-term bars tend to use narrower bandwidths than might be expected. This may be because many of these traders are using Bollinger Table 3.2 Traditional Parameters for the Width of Bollinger Bands
Chapter 3: Time Frames Bands as a type of volatility breakout system. We will go into this more in Chapter 22 on day trading. KEY POINTS TO REMEMBER Three time frames are short, intermediate, and long. Fit the time frames to your own horizons. Organize tasks by time frame. Use a descriptive average as a base.
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