Bollinger Band as a Dynamic Support/Resistance Level

9 thg 12, 2023

This study delves into the significance of the Upper Bollinger Band (UBB) as a resistance level in financial markets, particularly focusing on instances where an asset fails to close above the UBB and the subsequent rallies when such breakouts occur. The Upper Bollinger Band, a technical analysis tool developed by John Bollinger, is a volatility-based band that encapsulates price movement. Traders often use it to identify potential reversal points or the initiation of a new trend.
Analysis:-

Resistance at UBB:
The UBB frequently acted as a formidable resistance level. Prices approach the UBB but fail to close above it, it suggests a strong selling pressure or a temporary halt in the bullish momentum.

Breakthroughs and Rallies:
Instances where prices successfully close above the UBB are marked by a shift in market sentiment. This breakthrough often triggers increased buying activity, leading to substantial rallies. The phenomenon may indicate a breakout from a consolidation phase or the initiation of a new uptrend.

Confirmation Signals:
Traders may use additional technical indicators or chart patterns to confirm the significance of the UBB breakthrough. For example, i have drawn a resistance zone.

Volatility Expansion:
Breakouts above the UBB are often accompanied by an expansion in volatility. This increased volatility contributes to the momentum of the rally, attracting more market participants.

in this chart the above phenomenon happened two times and was a successfull entry.

While going through charts it has also failed you can see itc and hindustan uniliver where it has failed. So add more confirmations of breakout like volume indicator or momentum indicators like rsi.