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9 Part I: In the Beginning at hand. It is not meant to be a scholarly cross-reference to the literature; rather it is a useful guide to readily accessible relevant books. Most of the books should be available in your library or easily obtained from your favorite financial bookseller. I have included a handy reference card for your convenience. Its bound into the back of the book. The basic Bollinger Bands rules are set out on the front of the card, the inside presents the M and W patterns, and the back presents the most important formulas. Tear it out and use it for a bookmark while you read. Then keep it by your computer so it is handy when you do your analysis. Finally, we have built a Web site, http: wwwBollingeronBol-lingerBands.com, to support Bollinger on Bollinger Bands. There youll find daily lists of the stocks that qualify for each of the three methods presented here and a screening area where you can screen a large universe of stocks based on any of the criteria from this book. There is great charting, a community area where you can discuss the issues and ideas related to Bollinger Bands, and links to our other sites as well. Upon finishing this book you will have at your disposal a set of tools and techniques that allow you to evaluate potential and actual investments and trades in a rigorous manner. This is an approach that allows you to eliminate much of the emotion surrounding the investing/trading process and therefore allows you to reach your true potential as an investor/trader.
# R THE RAW MATERIALS The market technician has a relatively small data set to work with, primarily price and volume. The data is reported for a chosen period-the high of the day, the low of the week, the volume for the hour, and so on. Typically the data comes in the form of date (time), open, high, low, close, and volume (see Table 2.1). The close is the most often consulted piece of data, followed by the high and low, then volume, and, last, the opening price. In June 1972, Dow Jones removed the opening prices from the Wall Street Journal in order to expand its listings and has never put them back. So several generations grew up without access to the open. Fortunately, with the advent of electronically distributed data, the open has again become widely available in the United States and is being used after a long period of neglect. These basic data elements can be combined in a variety of ways to form the charts that traders and investors typically use.
Part I: In the Beginning Table 2.1 Typical Price Record for IBM* Date | Open | High | | Close | Volume | 19-Jan-01 | 107.50 | 113.9375 | 107.25 | 111.25 | 14,762,200 | 18-Jan-01 | 104.375 | | 103.50 | 108.3125 | 25,244,900 | 17-Jan-01 | 95.375 | 97.75 | 94.3125 | 96.6875 | 9,727,000 | 16-Jan-01 | 93.75 | | 91.8125 | 92.75 | 5,671,900 | 12-Jan-01 | 93.6875 | 96.4375 | 92.375 | 93.8125 | 6,448,000 | ll-Jan-01 | 92.9375 | 94.25 | 91.25 | 93.6875 | 9,635,000 | 10-Jan-01 | 92.50 | 94.9375 | 91.6875 | 93.4375 | 7,656,100 |
*From www.yahoo.com There are four types of charts of significance: the line chart, the bar chart, the candlestick chart, and the point-and-figure chart. The line chart is the simplest of all, offering an outline of price action. The bar chart is the chart of choice in the West, usually drawn without the open or volume. Candlestick charts, which are rapidly gaining acceptance in the West, come from Japan, where they are the charting method of choice. Point-and-figure charts depict price action, pure and simple, and are perhaps the oldest of Western technical charting techniques. Charts may be created for any time period: 10 minutes, hourly, daily, weekly, etc. Years ago the primary chart types were daily, weekly, and monthly. Hourly, daily, and weekly charts became the popular choice in the 1980s, and the trend has continued toward ever-shorter time periods, with tick charts that display each trade as well as five-minute and shorter charts enjoying ever-increasing greater popularity. Most charts display price on the vertical, or y, axis, and time on the horizontal, or x, axis. But that is not always the case. EquiVolume charts-invented by Edwin S. Quinn and popularized by Richard Arms of Arms Index fame-depict volume on the x axis. Point-and-figure charts depict the number of price swings in excess of a given value on the x axis. Line charts simplify the action greatly by taking a connect-the-dots approach and connecting the closes to render a sketch of the action.1 Line charts often are used for clarity when a great deal of data must be displayed and bar charts or candlesticks would be too cluttered. They also are used when only a single point is available
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