Here is a method to track current trends and spot reversals.
This technique combines two separate indicators, the Bollinger Bands (BB) and the T-Line.
Bollinger Bands contain three parts. First is a 20-period simple moving average, the middle band (purple line). Second is the upper band and third is the lower band (blue lines). Both of the upper and lower bands are two standard deviations away from the middle band. This sets up a powerful and visual summary of historical volatility. Thus, price is unlikely to trade above the upper band or below the lower band. When price does move outside of these ranges, it retreats back into range very quickly. So, Bollinger Bands are a great “probability matrix” to time and control both entry and exit.
Rick Saddler coined the term “T-Line”. The T-Line (red line) is an 8-day exponential moving average of price that yields surprisingly reliable signals for changes in price direction. The general rule is that when price is above the T-Line, it remains bullish until it crosses below and closes for at least two sessions. This sets up a bearish reversal. When price is below the T-Line, the prevailing bearish trend continues until price crosses above and closes above for at least two consecutive sessions.
Taken apart, Bollinger Bands and the T-Line are powerful on their own. However, when used in combination, you set up a dynamic trading range, making it easy to spot when a trend begins and ends. As price advances, the BB upper band represents resistance and the T-Line is support. When prices are moving lower, the T-Line is resistance and the BB lower band is support.
The chart for the S&P 500 (SPX) demonstrates the trend and exit signals this combination provides.
The first crossover in early February was bullish, marked by the move of price above the T-Line. Price moved up over 45 points to the high before the crossover reversal.
In late February, price was trending lower with considerable strength and many gaps. The retracements occurring in the second week could have been viewed as reversals, except for one important signal: Close price remained below the T-Line from February 24th entry at 3226 all the way down to End-March when it traded at a low of 2192. Price did close above the T-Line toward the beginning of March, but immediately crossed back and closed below the T-Line the next day. Since price did not close above the T-Line resistance for two consecutive sessions, this bearish trend continued. This was further supported by the BB lower band, marking dynamic support.
On February 27th, price broke the Bollinger Band Support and created a Bollinger Band Snap. This could be used as an exit, since price had moved down almost 250 points from the open, resulting in a profit, and price is unlikely to stay trading below the lower Bollinger Band for long. If one exited based on the strong Bollinger Band Snap on February 27th, a re-entry can be taken on March 6th, with a confirmed close price below the T-Line at the 2973 price level and continuing down to about $2192. How would you know when this bearish trend would end? Resistance was marked by the T-Line and support by the lower Bollinger Band. This did not end until March 25th when price closed above the T-Line for the second session in a row, indicating an end to the bearish trend, and a total move of over 750 points.
The third crossover took price back into bullish territory, this time marking the end to a four-week bearish trend and the start of a new bullish move. Price crossed above and closed for two consecutive sessions on March 25th. The S&P 500 moved up over 150 points, before it reversed and closed below the T-Line on April 1st. However, even though most of the price activity took place below the T-Line on April 2nd, it did not close below the T-Line. This type of price activity may warrant a protective stop since the close of the bar was just barely above the T-Line.
Price moved back above the T-Line and continued its move higher with another one day close below the T-Line on April 21st. When did the actual trend exit appear? May 4th, when price closed below the T-Line for the second session in a row.
This combined Bollinger Band and T-Line dynamic trend tracking is reliable and it can be used effectively in many ways. First, as shown at the beginning of the chart, it shows a long entry and provides profit opportunity as the index rises. Second, a crossover, with a confirmed second session close, is the exit point for leaving a current trend, taking profits, or for entering a new trend based on the newly revised price direction. Third, as shown in the February 24th trend, using a Bollinger Band Snap to signal a time to take profits and exit the position as price generally will retrace back inside the Bollinger Bands. Fourth, using a desired profit target based on historical research on the selected underlying and exiting once that profit target is reached.
This solves the most disturbing aspect of short-term options trading. When do you exit a trade? Even with the lack of price-specific reversal signals, the combined use of the Bollinger Bands and the T-Line are a powerful and reliable system to improve timing.
This method has too much of false "breakout", how can it apply to real trade?
NewCycleTrading
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@yytellmey, To apply to a real trade you could Buy to Open a call on a second session close above the T-Line, as long as price is below the upper BB. Then, either set a GTC to Sell to Close the call once it hits your profit target, STC the call if it creates a Bollinger Band Snap (trades above the upper Bollinger Band), or continue to hold for the entire trend and exit (STC) when price closes below the T-line for two consecutive sessions. The opposite is true for a short entry, BTO a put and choose the exit strategy you want to use; profit target, BB snap, or T-Line exit. You can also pair this entry/exit strategy with another indicator you are familiar with to help filter your entries.
nayabr7676
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what does this all mean , are we going up or down on S and P
appreciate it, thanks a lot
chris0423
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@nayabr7676, The answer to your question is, "yes".
nayabr7676
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@chris0423, sorry , unsure, what it means , could you kindly clarify UP or DOWN,thank you
ReallyMe
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@nayabr7676, very simple: it goes up if the "Bollinger Band & T-Line Timing" says it will and falls otherwise - with this simple method anyone can be a millionaire!
@nayabr7676, Hi Nayabr. The point is, that the author is presenting a method for other traders to use to detect the trend reversal in a market. He or She has chosen an 'Education' tab next to the title "Bollinger Band and T-Line Timing" at the top of the post. If they were seeking to provide an estimate on whether the think the market will go up and down, I think you see 'analysis', or some other tab here, but I cannot be sure. The point I am making, is that this is an educational post, not an analytic one.
Don't feel bad, and I respectfully disagree with some other posters on this thread. It is not 'very simple' to everyone and you don't know what you haven't learned.
Forgive me if I am incorrect, but by your question, it seems that you are starting out in trading. If this is the case, then I would suggest not parting with a cent of your hard earned cash until you have done some reading around support and resistance, trending markets vs non trending markets, risk management, volatility etc.
Once you have done your reading, start playing around with some demo accounts. Learn how to backtest, and design a few strategies. (For example, personally, I like to backtest strategies, such as the one above posted by the author, over historical data, across different markets and different time frames). Once you have backtested as strategy which you believe will be profitable, then forward test it on the most promising time frames and markets, with a demo account, then with small position sizes, before using it alongside your other proven strategies.
You're learning a skill that could feed you for life. There's a lot to learn and it can be overwhelming knowing which resources to choose and where to start. There's a million ways to make money in the markets, but there's a trillion ways to lose. Surprisingly, knowing whether a market will go up or down, is not always enough by itself, unless you are particularly lucky.
I've trawled through tons and tons of education online and everyone will have their own favorites but you have to do the work at the beginning. It kinda sucks, but you'll be better off for it in the long run.
A lot of people start at babypips.com/ which is an excellent resource for learning FOREX for beginners. They set it up as a course, rather than a basket of facts. This can be extremely useful to provide a framework for the knowledge you are acquiring.
You might not trade FOREX, but in my personal view, the underlying asset that you are tradeing doesn't matter as much as the price of that asset and understanding the factors that affect it. The majorty of concepts apply to most markets and with a few tweaks or other reading, you'd be able to find a market or set of markets that suits your personality and lifestyle.
NewCycleTrading
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@nayabr7676, @SpandexMan is correct, this is an educational post on how to trade the T-Line and the Bollinger Bands to time entry and exit. According to that strategy, currently the S&P 500 is in a rising trend as price is trading above the T-Line and below the upper Bollinger Band. If price closes below the T-Line for two consecutive sessions, it is indicating a possible shift in the trend.
SpandexMan is also correct that it is always important to test and track your chosen trading strategies and immerse yourself in education about trading, before you actual start trading live. This is an invaluable suggestion and will help prevent the heartache that can come with learning while trading with live money.
If you are looking for education, there are a few educational ideas that can be viewed on my TradingView profile. There are also additional educational posts from other TradingView members in the "Ideas" section, just make sure you toggle to "Educational ideas". I hope this helps.
PheucticusTrade
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It seems like the T-line does all the job. Why do you need the bands?