Bollinger Percent B
Another of my most highly used indicators is the Bollinger %B indicator. Viewed on charts as a subgraph, %B is possibly the best indicator for identifying overbought and oversold conditions in a market.
For a “by the book” definition of Bollinger percent B take a look at the think or swim learning center. Provided by ThinkorSwim.com and TDAmeritrade.
The %B indicator is very easy to use. It’s only purpose is to assist in identifying what state the market is in.
Is Bollinger %B showing the market in an overbought or an oversold condition?
When a market enters an extreme period, either overbought or oversold, it can signal that a retracement or a reversal is imminent. Using the %B indicator you’ll always know exactly where the market is, at that time. However, be aware that during trending markets either condition can simply signal that the prevailing trend will pause without reversing prior to continuing.
To determine the current market condition using Bollinger %B;
- Below 0 – Extremely Oversold
- Between (0 – 50) – Oversold
- Between (50 – 100) – Overbought
- Above 100 – Extremely Overbought
Easy enough, right?
Lets look at an image to clarify. Click to Enlarge.
Notice at each extreme of the %B indictor, price changes direction. Sometimes dramatically.
This indicator can be extremely powerful and also effective in multiple time frames. Plug it into your charts for a spin. I doubt you’ll be disappointed.
Want more info on Bollinger %B? Ask me in the comments.
Oh… I almost forgot… My settings for Bollinger %B look like this. Click to Enlarge.