Trading Bollinger Bands

The Bollinger Band trading is all about the relativity of the price action and the momentum or the vigor associated with same. How I see the price action is when the price move out of the Bollinger band, out in an uptrend from the upper band, then it creates a new high for the time being, and if the price moves out of the Bollinger band out from the lower band in a down trend then it creates a new low, then again for the time being. Note: Bollinger Band is an envelope, a parameter which is, mathematically +/- two standard deviations. So if the prices move out of the band this means that the prices have gained strength which has not been displayed in the recent past. Now this happening of the out of the Band movement and its implication thereafter are totally dependent on the location of the price in terms of the trend, the escalation, or the decline that the prices have gone through in the past. This movement of the movement of the price out of the bands i.e. the 2 Standard deviation envelope proves that the price has defied the consistency and has shown vigor. A sudden abrupt action generally calls for consolidation; this again depends on the location of the occurrence of the out of the band movement. A consolidation may turn out to be a reversal or a continuation depending on the situation. Whenever an out of the band movement occurs the prices generally move a little sideways before going ahead. Now the prices may make new RELATIVE HIGHS or ABSOLUTE HIGHS RELATIVE HIGHS: Relative highs occur when the post correction rally again takes the prices out of the Bollinger band emphasizing the potency of the potency of the up move. ABSOLUTE HIGHS: Absolute highs are when seeing (base on the numeric figures) the next rally is higher than the previous rally. This implies that relative highs need not be absolute highs What is more important, a relative High or absolute high? The Bollinger band emphasizes on the relativity hence the relative highs and lows (as per the case may be) are to be considered. However the absolute highs and lows if they occur in the same direction as has been indicated by the band and the other indicators then it will emphasize the prediction. Contrary to this if they appear predicting otherwise a caution should be employed.

An example to explain the last paragraph: During a down trend the prices blow out of the lower Bollinger band establishing a low, the prices correct and then again move downwards only this time they are well inside the lower band this means that there is no new relative low is registered or this is a high on relative terms the vigor or the momentum of the move has vanished. Now if this new low after correction is higher than the previous low will mean that prices are higher on the absolute grounds as well. Now reading the other volume and momentum indicators we can ascertain if the trend has changed. Contrary to this if the new low post correction appears well within the lower band but is lower than the previous low, on the absolute grounds, then we should be skeptical regarding the future price action and be cautious if initiating a position.