Using Bollinger Bands

The speaker provides an overview of the bollinger bands, their use, and their practical application.  Bollinger bands provide an indication to whether the stock is trending, rangebound, or ready to breakout of a consolidation.  During a rangebound market condition, the upper and lower band will act as resistance and support. 

By defintion, the bollinger bands measure the 2nd standard deviation of the price action relative to the high and low of the specified period of time. 

He goes on to discuss the difference between contracting and expanding bollinger bands.  If the bands are contracting, this is an indication of low volatility and low volume.  In this case, expect the breakout from the consolidation to be in proportion to the amount of time that it was in that consolidation. 

When the bands are expanding, this is an indication of increased volatility and volume.  Bollinger bands hold price about 95% of the time; therefore, when prices advance above the bands, this is an indication of heavy volume and strong price action coming through. 

To apply the bollinger bands, the bands should be relatively flat or horizontal such that one can buy support and sell resistance.