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68 Part VI: Summing Up This book presents a relative decision framework that is fully adaptive. It should stand you in good stead for many years to come. Markets do change, as do economies, investors, and all the rest. However, these tools should morph with the markets, driven, as they are, by market variables, price, volatility, and volume. The music critic Scott Yanow, in his All Music Guide to Jazz, (published by Miller Freeman Books), described musician Albert Ayler this way: It could he said of tenor-saxophonist Albert Ayler whose music advanced from screaming sound explorations to early New Orleans-type marching bands, [that he] went so far ahead that he eventually came in at the beginning! Bollinger Bands and their related tools and techniques are sufficiently advanced that their use should allow you to concentrate on the real matters at hand, trading and investing. In essence, by employing these tools you are free to get back to basics. It is up to you to decide whether I have followed in Albert Aylers footsteps. I hope I have. One of the great joys of having invented an analytical technique such as Bollinger Bands is seeing what other people do with it. There are many ways to use Bollinger Bands, and I invite you to explore various techniques in your own analysis. Please let me know of any discoveries you make or innovations you achieve. I can be reached via e-mail at BBands@BollingerBands.com. Last, but not least, I am always asked how to prepare for investing. First, a college-level statistics course of the type given in the psychology department will provide you with the foundation you need to understand the numbers you are working with. Second, a few basic psychology courses will shed some light on the workings of the market, especially if one of them is a course in mass psychology. Finally, learn how to program. BASIC is a good place to start, as is LISP. Although has become the language of choice for serious developers, BASIC will be sufficient to let you deal with the analysis programs you are most likely to run into. And while LISP may not be the language de jour, mastering it can be fun and will give you a set of skills you will find useful no matter what language you settle into. Whatever you do, dont let computers intimidate you. They are just tools, and can be fun and rewarding to explore. Investing is a tough task; take care out there.
ENDNOTES Preface 1. Over the years, large portions of what was once regarded as technical analysis have been carved off and included in the quantitative and behavioral disciplines. Today, quantitative analysis, largely a blend of technical and fundamental concepts, has a large institutional following. Behavioralists are largely confined to academia at present, but are starting to make inroads among serious investors. While categories are confusing, the concept behind Rational Analysis is not; take what works without regard for labels and use it. Chapter 1 1. Michael White and John Gribbin, Einstein: A Life in Science, New York: Dutton Books, 1994.
Endnotes 2. Oliver Wendell Holmes, Jr., The Common Law, Boston: Little, Brown & Co., 1881; reprinted by Dover Publications, Boston, 1991. Chapter 2 1. Line charts can give a false sense of continuity by connecting points for which there is no logical connection. Continuity implied by connecting the dots can also be a problem for indicators and other nonprice series where the data points are independent of one another. 2. Actually some point-and-figure charts can include a reference to time. For example, for daily charts the first posting each month, whether an X or an O, can be replaced by the number of that month, 1 for January, 11 for November, etc. Similar schemes can be employed for other time frames. 3. The 50-day average is the most commonly used average for this purpose, and for most traders this should work well. However, feel free to lengthen it or shorten it to fit your trading style. Chapter 3 1. Another starting point for determining the calculation length for Bollinger Bands is to run a moving-average crossover optimization. With this technical procedure, you select the moving average that produces the best buy and sell signals when it is crossed by price. Double the length of the optimization results. This will often put you in the right ballpark and can be used as a check for the visual method. The logic behind this arises from cycle analysis, where quarter- and half-cycle moving averages often produce useful results. 2. Insensitivity to small changes in parameters is a key criterion in developing trading systems. For example, a system that produces similar results with 18-, 20-, and 22-period averages is far superior to a system that produces great results at 20 periods, but so-so results at 18 and 22 periods.
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