I have yet another method, and this one here is named Method BB because it is all Bollinger Bands. Not sure if it has been done before, but I haven’t seen it around here so I am claiming it as my own! For those of you that took statistics, you may recall that Bollinger Bands are a graphical representation of standard deviations. Essentially, in normal data sets, there is a bell curve in which most numbers fall under, and there is less of the data at the extremes. As the size of the data set becomes larger, the more accurate it becomes.
Anyway, all you should think about for this is that:
• 68.3% of a normal population(Data set, PRICE HISTORY) lie between plus or minus 1 standard deviations.
• 95.4% of a normal population lie between plus or minus 2 standard deviations.
• 99.7% of a normal population lie between plus or minus 3 standard deviations.
Or easier explained, the price won’t go beyond 3 standard deviations very often.
Here are the Bollinger Bands you should put on your DAILY chart: (There are 6, and that seems like a lot, but just do it!)
• BB(20,1.5) Green
• BB(20,2) Yellow
• BB(20,2.5) Orange
• BB(20,3) Red
• BB(20,3.5) Purple
• BB(20,4) Blue
Also, add an Average True Range(ATR) indicator with a period setting of 20. The value of the ATR will be our Stop Loss when we enter trades.