Bollinger Bands - Contraction To Expansion

Bollinger Band Timer Copyright 2011 Mark Deaton – www.bollingerbandgenius.
com
Contraction to Expansion
Here is the move to a consolidating state of price action where price is taking a break and getting ready
to either resume the trend or reverse. Your key to getting on the right side of direction is
support/resistance, and above all swing structure.
Figure 1
In figure 2 below notice the lower bands the begin to pull away to the downside showing just the
slightest expansion in the bands – the more they pull away the more likely a large move is at hand.
However the largest moves can be 1 candlestick at a time and actually provide the lowest risk. Large
brisk fast moves often are too risky.
Copyright 2011 Mark Deaton www.bollingerbandgenius.com

Bollinger Band Timer Copyright 2011 Mark Deaton – www.bollingerbandgenius.com
So this is a great example – its best if the explosion happens after you get in. The first thing you want to
worry about beyond the initial set-up is your risk – keep your risk small and you will be in the trade with
little to worry about.
Notice how as we break out of the tight rather decent sized sideways channel we begin to break to the
upside and as the upper band PULLS price up the lower band begins its decent!!
This is key to getting in on a large move!
Notice also that potential for a low risk entry vs. stop is there as well. (I’ll get into this more in a future
email.)
entry
stop
Figure 2

Next in figure 3 price takes off without a hitch!! – In the next email or so I want to start getting you
familiar with the characteristics of Bollinger bands and how they provide clues as to future price action.
The slight pull down of the bands in the initial stages of the move and then the bands moving up
together is indicative of a modest uptrend. In the case it was modest but lasted a LONG TIME! Nothing
wrong with a modest large move!
Figure 3

Figure 4
In figure 4 its important to understand that there’s a difference in Bollinger band characteristics from
the point of entry into the stages of trend development. All have potential, there’s nothing wrong with
a slowly upward moving trend unless you’re in a short term option – otherwise the slow progress is fine
and can often evolve into huge profits.
So under “initial break” we have MAJOR EXPANSION – this is the best start one could ask for , a mjor
explosion in price. The only potential downfall is it might be hard to get a fill and 1 single candlestick can
increase the risk to dramatically because you’re too far away from a smart stop.
The next one is slight expansion where the lower band is only slightly moving down. This equals less
immediate volatility but very often provides less risk into a nice large move, so as you can see both have
merit.
Last is no expansion at all between the bands but a decent upward pull on the upper band. Very often a
start like this will require a strong look to swing structure and a nice higher swing low to validate entry.

Figure 5
Now in Figure 5 lets run through Bollinger band traits that you can count on. Especially when combined
with a little price action common sense.
A – Notice price broke through that slight downtrend and headed to the upper band. Basically 4 gaps up
to a downward momentum Bollinger band. This is the” head butt “we talked about in a prior email.
Now we have a “head butt” into the upper bands as well as over extended price action long – are we to
expect a reversal O YES, definitely – the question is what kind?
B – So here’s the reversal, or pullback in this case. We get a bit of a move down and likely we might
even expect more downward momentum from the next candlestick but instead we get a higher open
and a move up.
C – The very next candlestick lets us know that the bullish nature of price is ON and that overextended
condition from price to the upside has taken its break and is going to now continue! Confirmed by what
has transpired to this point as well as now EXPANDING BANDS!

D – At point D we are now in the 2nd phase trending of Bollinger bands and we get slight expansion in an
up moving trend !
E – At point E expansion stops and both bands head up demonstrating a slight trend up. – At this point
major volatility isn’t required for sustained movement.
So you see once the trend is on we require less and less from Bollinger bands expansion. In other words
it takes some heat from volatility and expansion to get the FIRE going but once its lit, even NO
EXPANSION and just parallel upward moving bands will sustain a nice long trend!

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Bollinger Band Timer Copyright 2011 Mark Deaton – www.bollingerbandgenius.

Copyright 2011 Mark Deaton www.bollingerbandgenius.com

This is key to getting in on a large move!

Copyright 2011 Mark Deaton www.bollingerbandgenius.com

Copyright 2011 Mark Deaton www.bollingerbandgenius.com

Copyright 2011 Mark Deaton www.bollingerbandgenius.com

Copyright 2011 Mark Deaton www.bollingerbandgenius.com

Copyright 2011 Mark Deaton www.bollingerbandgenius.com

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