Understanding Stocks
Understanding Stocks
Understanding Stocks
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TECHNICAL ANALYSIS: TOOLS AND TACTICS 137<br />
the end, identifying that Caterpillar was oversold and would eventually<br />
reverse its downtrend.<br />
Bollinger Bands: Another Measure of Whether <strong>Stocks</strong><br />
Are Overbought or Oversold<br />
Like the RSI, Bollinger bands are an oscillator that helps traders identify<br />
whether a stock is overbought or oversold. Bollinger bands have<br />
two lines, an upper and a lower band with a gap between them that<br />
expands or contracts as the stock price moves. You should keep your<br />
eye on the third line in the middle. This is called the price indicator, and<br />
where it goes signals whether a stock is about to reverse direction. An<br />
example of Bollinger bands is given in Figure 12-4.<br />
Technicians look for a number of signals when using Bollinger<br />
bands. First, if the two outer bands move so close together that they are<br />
almost touching (narrow), this is a signal that there could be a sudden<br />
move in the stock price, either up or down. Second, if the price indicator<br />
CAT Daily Bollinger Bands (20) 12/06/02<br />
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Volume ©Big Charts.com<br />
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Figure 12-4 Bollinger bands<br />
Millons
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