Beware of the Bollinger Bandit!

Besides the 'Hai'rami that I wrote about in my last post, ACCICB also came up with the Bollinger Bandit which has caused him much pain when he first started trading. I'm not trivializing TA by giving them such catchy names although it does seem to stick in the head much better it seems.

The Bollinger Band is wonderful when your candlesticks are touching them when it's on the uptrend as it often mean that there's a possibility that the next day/days' candlestick would continue to rise given that the other oscillators are in agreement.

The thing about oscillators is that by right you are supposed to have the majority of them in agreement before you pull the trigger. However when there's no clear majority, it becomes murky as to whether to pull the trigger or not. Sometimes we can take a small punt or we can just forgo it. There's no right or wrong with any decision you take, just have to make sure that you are right more often that you are wrong. 

However, when its on the downtrend, then the Bollinger Bandit could come into play if the candlesticks are touching the band. It becomes a question of whether the bandit will outplay the other oscillators or will it be the other way round. If it's a steep decline, it seems to need two candlesticks plus other oscillators to reverse the trend at least for the next day.

Sometimes when the candlestick jumps out of the Bollinger Band becomes a question of whether it will reverse the next day because it could represent an important opportunity to make some $$$. I guess it will depend on the type of candlestick pattern that occurs as well as the reason for it occurring. The ongoing Greek issue has seen some European stocks doing some crazy dancing which was just excellent money making opportunities.

It could be a relief rally or short covering rally for all we know so it was a case of getting in and out within a day or two which is how I like it rather than having it drag on for days as it kind of screws you up when it doesn't go the way you want it to be right away. Then it becomes a test of your resolve and conviction whether your reading is correct. You could end up panicking, sell in a flurry, taking a loss or just holding on and then watching it go further down or bounce back over time.

Your trade could end up becoming an investment and that could be horrible if you are not buying on cash. Because the days could go into weeks then months or maybe like forever as some stocks just simply never rebound...I could think of a few SGX stocks that was exactly like that which used to be in ACCICB's portfolio. Then the multi million dollar question would be whether to cut loss (if you have not already done so) or average down and when is the best time to do that?


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