Hello traders! Welcome to another software update from your friends here in TrendSpider. We’re thrilled to introduce BBTrend, a powerful new indicator developed by esteemed technical analyst John Bollinger. Let’s dig into how it works!
BBTrend emerged from a simple yet profound observation: traders often plot multiple Bollinger Bands®, specifically the 20-day and 50-day, on the same chart. This practice led to an intriguing discovery. By using the standard width of +/- two standard deviations, a pattern was noticed: in an uptrend, the upper bands tend to converge, while the lower bands diverge. Conversely, in a downtrend, the lower bands converge, and the upper bands diverge. This led to the creation of BBTrend, a tool that harnesses these observations into a practical, powerful trend indicator.
How BBTrend Works
At its core, BBTrend is about understanding the dynamics between the Bollinger Bands. It calculates the absolute value of the difference between the lower bands and subtracts it from the absolute value of the difference between the upper bands, normalizing the result. This algebraic approach transforms complex market movements into a clear and interpretable form.
When the difference between the upper bands is less than the difference between the lower bands, the histogram will print blue bars. If a bar is light blue, then it is greater than the bar that preceded it. If a bar is dark blue, it is less than the bar that preceded it.
When the difference between the lower bands is less than the difference between the upper bands, the histogram will print red bars. If a bar is light red, then it is less than the bar that preceded it. If a bar is dark red, it is greater than the bar that preceded it.
These shifts from light blue to dark blue and light red to dark red can denote a shift in the momentum and, therefore, potentially the direction of the trend.
Utilizing BBTrend in Trading
BBTrend is more than just a numerical value; it’s a window into the trend strength of a market. Here’s how you can utilize it effectively:
Identifying Trend Beginnings and Endings: Mark the peaks and troughs in the BBTrend histogram as potential starting or ending points of trends. These are indicated by shifts from light to dark bars.
Powerful Confirmation Tool: Peaks or troughs in BBTrend gain additional significance when they coincide with a two-bar reversal pattern at either the upper or lower Bollinger Band.
Trend Lines for Early Warnings: Drawing trend lines on the BBTrend can provide early warnings, signaling when it’s “Time to Pay Attention” to potential market shifts.
Spotting Consolidations: During strong trends, the peaks and troughs in BBTrend often indicate consolidation periods, offering strategic insights for traders.
Customizable for Your Style: BBTrend is flexible. Adjust the lengths of the bands to suit your trading style, ensuring they align with your unique approach to the markets.
Scanning for BBTrends Setups
The BBTrends indicator can be utilized in the Market Scanner to identify many types of setups. Here are a few examples!
- BBTrend Momentum Shift (Negative) – This scanner looks for instances in which the BBTrends indicator has been steadily increasing above the zero line for a period of 10 candles and has just flipped from a bright blue to dark blue, indicating the potential for a negative momentum shift.
- BBTrend Momentum Shift (Positive) – This scanner looks for instances where the BBTrends indicator has been steadily decreasing below the zero line for a period of 10 candles and has just flipped from bright red to dark red, indicating the potential for a positive momentum shift.
- BBTrend Zero Flip (Negative) – This scanner looks for instances in which the BBTrends indicator has been above the zero line for 10 candles and has just now flipped below the zero line.
- BBTrend Zero Flip (Positive) – This scanner looks for instances in which the BBTrends indicator has been below the zero line for 10 candles and has just now flipped above the zero line.
BBTrend is not just an indicator; it’s a new lens through which to view market trends. By understanding the interaction between Bollinger Bands in a new way, BBTrend offers traders a powerful tool for identifying and confirming trend directions and strengths. Whether you’re a seasoned trader or just starting, BBTrend is a valuable addition to your technical analysis toolkit, enabling more informed and confident trading decisions.
As always, we hope you find this new indicator helpful! If you have any questions, do feel free to reach out to us via the ‘Contact Us’ button in the bottom right-hand corner of your platform view.