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25 Chapter 7: Construction 57 7/00 8/00 9/00 10/00 11/00 12/00 1/01 Figure 7.4 Bollinger Bands, 50-day moving average and 20-day standard deviation, Deere & Co., 150 days. Mix and match, or is that mix and mismatch? plot multiple bands using the same calculation periods, say, 20 periods, but differing bandwidths, 1 and 2 standard deviations, for example (Figure 7.5). The other is to plot multiple sets of bands with different parameters, say, 20 periods and 2 standard deviations and 50 periods and 2.1 standard deviations, on the same chart (Figure 7.6). Of the two approaches, the most interesting is the latter. There are occasions where the disparate elements line up and mark interesting junctures. While this is not a recommended technique, it is a very interesting one and worth your attention after you have mastered the basics. Life is complicated enough as it is. Stick to the basics and leave the wild stuff to those so inclined. After you have mastered the basic techniques, if you feel you can improve your performance by exploring the variations, feel free to do so. A solid foundation in pattern recognition (see Part III) and indicator use (see Part IV) will allow you to experiment and understand the pros and cons of the variations. So until youve got the basics down, try not to get lost in the woods.
58 Part II: The Basics  7/00 8/00 9/00 10/00 11/00 12/00 1/01 Figure 7.5 Multiple Bollinger Bands, equal periods, multiple widths, Deere & Co., 150 days. Aficionados claim that this presentation helps them see things better. -1-1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [ | | | | | | | | | | jffl | / / / j J / | | | | <....... | | | |
7/00 8/00 9/00 10/00 11/00 12/00 1/01 Figure 7.6 Multiple Bollinger Bands, different periods, normal widths, Deere & Co., 150 days. Its interesting to see where the bands come together.
Chapter 7: Construction KEY POINTS TO REMEMBER Use a simple moving average for the base. Use standard deviation to set the width. The defaults are 20 days and 2 standard deviations. Vary the bandwidth as a function of average length. Keep it simple.
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