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TB Classic and Bollinger Bands
Wed, Nov 10, 2010, 11:02 PM
Post: #1
Information TB Classic and Bollinger Bands
With version 1.8 TradeBuilder Classic gets one of the most requested integrated indicators - Bollinger Bands. Now how do we effectively use it in trading? Read on, and you'll know.

The algorithmic integration was done in such versatile way as to make almost any Bollinger-based strategy possible. There are two main modes: normal (or trend-following) and tag-and-reverse (ranging).

Remember, you DO NOT have to attach Bollinger Bands Metatrader4 indicator to the chart. It was added in below examples for illustrative purposes only.

Before we start, let's examine what is meant by Deviation - a necessary and an influential Bollinger parameter. Deviation is a statistical term that measures the variation (or deviance) between a mean (average) of a period and the current value. Hence, the higher the deviation, the less of a statistical chance the value has of reaching it.

Normal/Trend-following mode
To activate, set IndBollinger to true and and Tag_and_reverse to false.

[Image: tag-and-reverse-off.PNG]

This is an excellent mode for trend-following setups - especially considering the fact that the algorithm is smart enough to issue only a single UP or DOWN arrow while price lingers above and below an upper or lower band. It basically ensures you don't end up getting numerous arrows of the same type as price wrestles with Bollinger band resistance (upper) and support (lower) lines. Once the upper band is pierced (period closes above it), the indicator issues a BUY signal, since it identifies the fact that a strong statistical resistance level has been broken. Similarly, when price pierces the lower band, indicator issues a SELL signal.

With this mode, you should use lower Period and Deviation settings. If you make either too high, you are decreasing the probability of a band pierce becoming an onset of a trend. Our example below has a Period of 20 and Deviation of 2.

[Image: normal_mode.PNG]

Tag-and-reverse (range-trading) mode

To activate, simply set both IndBollinger and Tag_and_reverse to true.

[Image: tag-and-reverse-on.PNG]

Since range trading and scalping, both, rely on identifying overbought/oversold conditions, we want to use higher Deviation and Period values. As previously explained the higher the Deviation, the lesser the chance price has of crossing bands and remaining there. Another words, once such deviation bands are pierced, price rarely lasts long above them, and often reverses towards the period average (center line). Therefore in this mode, SELL signal is issued when period closes above the upper band, and BUY when it closes below lower band.

In our example below, we have the following settings: Period 30, Deviation 2. As rule of thumb, you should either make the Period OR Deviation higher (than that of normal mode), but not necessarily both as doing so would really cut down arrow issuing frequency (statistical conditions would become too extreme).

[Image: tag-and-reverse.png]

You should definitely combine Bollinger Bands with other integrated indicators, especially momentum/strength oscillators such as RSI, CCI, Williams %R and so forth to further filter and validate signals. Parabolic Stop-and-Reverse (PSAR) and Moving average crosses also work well.

Hopefully this tutorial will help further empower your trading strategies. Bollinger Bands are popular, and for a reason - their versatility and statistical nature complements and improves almost any trading setup.

Marko
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