Senior Analyst Jeffrey Kennedy shows you how these volatility indicators support pattern recognition

As a technical trader, are you able to view financial market fluctuations clearly and reliably?

At Elliott Wave International, we hold that the Elliott Wave Principle is the most effective tool for analysis. Yet the Wave Principle works well with other technical tools. If you are ready to trade with Elliott, our educational subscription editor Jeffrey Kennedy can teach you how to integrate ancillary technical indicators — such as Bollinger bands — to build high-confidence setups in the markets you trade.

Bollinger bands identify periods of increased and decreased market volatility. Learn about the significance of these fluctuations in this video about Bank of America Corp. (BAC) taken from Jeffrey’s Elliott Wave Junctures service:

Here are Jeffrey’s notes from the lesson:

Bollinger bands form a two-period standard deviation channel based on a 20-period simple moving average. This channel will contain 95% of all price action with the moving average acting as a center line, which often provides support and resistance. The width of the Bollinger bands increases and decreases with market volatility.

Narrow Bollinger bands coincide with low market volatility, which often leads to big price moves. Option traders like this because option prices are low at this time. Conversely, wide bands imply that market volatility is high, which translates into expensive options.

The recent narrowing of the Bollinger bands in BAC signals decreasing volatility. Since periods of low volatility precede periods of high volatility, look for a big move in the days to come.