Technical Analysis - Common Indicator Uses
BOLL Indicator: One Channel to Control Global Stock Price Movements
WHAT IS BOLL?
The Boolean line (BOLL) is a very useful technical analysis indicator, also called the “Boolean Channel”. It was founded by American stock analyst John Bollinger in the 1980s.
The concept of a “Boolean channel” is based on the fact that the price of a security tends to move around a so-called “price hub”, with a certain range of up-and-down fluctuations.
With the help of the Boolean indicator, investors can intuitively understand the range of possible fluctuations in the price of a security and identify potential market trends, resistance and support levels.
The Boolean line consists of three upper, middle, and lower rail lines. The middle rail line is located in the middle, usually as an average line (MA) that goes up to the price center; on the basis of the midline, the upper and lower lines can be calculated separately according to statistical principles.
PARAMETERS AND CALCULATION METHODS FOR BOLL
Boolean indicator can customize two parameters.
In general, the intermediate rail line is set to a 20-day average, and the up-and-down rail line is twice the standard difference for the intermediate rail line.
Medium rail = MA20
UPPER RAIL = MA20+ STANDARD DEVIATION ×2
Underrail = MA20- Standard Difference×2
STANDARD DEVIATION IS A STATISTICAL CONCEPT THAT MEASURES THE DEGREE OF DISPERSION OF A SET OF DATA RELATIVE TO ITS MEAN. In technical analysis, standard spreads can be used to assess the volatility of closing prices.
According to the characteristics of the statistical “normal distribution”, the 2-fold standard deviation covers about 95% of the data. Therefore, parameterized by 2x the standard difference means that the Boolean channel can cover the vast majority of price fluctuations.
By observing the wide and narrow changes in the Boolean channel, investors can intuitively understand the volatility of securities prices.
CORE POINTS OF BOLL
In essence, the Boolean line is to represent the volatility in a “visual” way. Price volatility increases, Boolean channel widens; price volatility decreases and Boolean channels narrows.
When the price approaches or exceeds the upper line, it is considered overbought; when the price approaches or exceeds the lower line, it is considered oversold. (Note: Overbought/oversold status can last for a long time, which does not mean that price reversals will necessarily occur.)
In some cases, the upper track can serve as a potential resistance level and the lower rail can serve as a potential support level.
During a strong up/down trend, the price may frequently touch or even break the up/down line, which often indicates that the current trend is strengthening, not an imminent reversal.
How to see BOLL | Case Study
High Polishing Low Absorption
Figure 1 shows that the stock price oscillates upwardly and downwards around the midline, with relatively small running intervals. In this turbulent market, it is possible to find the right entry trading opportunities by using the up/down tracks as a potential resistance and support level respectively.
Due to homeostasis
Figure 2 shows that the share price is essentially running above the mid-line and is in a clear uptrend. In the process, the share price fell several times near the mid-track and tested the mid-track, which provided potential entry opportunities for the bulls.
Grand Opening Ceremony
Figure 3 shows that after a period of contraction of the Boolean Channel, a sharp expansion attitude appears, indicating that the movement evolves from low volatility to high volatility. Stock prices continue to hit or even break through the track in the ensuing strong rally, which often indicates a signal that the trend may be strengthening rather than reversing.
Form Confirmation
Boolean lines are also useful for confirming some classic graph forms, such as double-bottom forms. Figure 4 shows that the following four steps can be referenced when confirming a double-bottom form (also called a “W bottom” form) using Boolean lines.
In one round of downtrends, the stock price fell to a new low and broke through the downtrend line.
The share price bounced for the first time and was resisted near the midline.
The share price fell again, although it again set new lows, but this fall did not hit the bottom line.
The share price bounced for the second time, breaking through the key resistance levels of the mid-track and double-bottom pattern.
BOLL Overview
The Boolean line (BOLL) is a very popular technical analysis indicator that can usually be used for:
Measuring Stock Price Volatility
Evaluate overbought and oversold
Serving as Potential Resistance and Support
Auxiliary Trend Trading
It should be noted that the Boolean line, as a lagging indicator, reflects only trades that have occurred in the market and cannot be used alone to predict future trends.
In addition, the effectiveness of boolean lines is not the same under different market conditions. For example, in band transactions, Boolean lines can be used to help identify suitable entry trading opportunities.
In real combat, Boolean should be used in combination with other technical analysis tools to achieve better results.
This content discusses technical analysis, and other approaches, including fundamental analysis, may provide different perspectives. The examples provided are for illustrative purposes only and do not reflect the expected results.
All investments involve risk, including the potential loss of principal, which cannot guarantee the success of any investment strategy.
