Feb

5

Bollinger Bands, from anonymous

February 5, 2014 |

I'm just a poor businessman, and haven't the wherewithal this week to consider a rigorous study, but I often look to JB's Bollinger Band indicators for guidance on the persistence of moves in various financial instruments, indicies, and single stocks. When one looks at the S&P cash index with Bollinger bands overlayed (I use the generic/default settings on Bloomberg), one sees that in many cases over the past year (though also over longer periods), when the index crosses either band, there is frequently an opportunity to profit from a reversal.

That always struck me as a natural consequence of competition of private interests in a marketplace, in which panic or excitement tend to burn themselves out rather quickly. But look at the same Bollinger band charts overlaid on treasury futures. The trending seems to be much more pronounced than in equity markets. When the price crosses one of the bands, it does NOT, as of late, tend to be followed by a short-term reversal.

One wonders if the propensity for markets to obey an oscillatory behavior (like SPX) or to disobey (like USM4) implies that trend followers may actually have a discernible (not random) chance to succeed from time to time.


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