Price Expansion and Retraction: The Rubber Band Effect

In technical terms, the bands are plotted at standard deviation levels above and below moving averages.  So if you see “2,20” that simple means the bands are plotted two standard deviations above and below the 20-day moving average.

They consist of three bands:

  • A simple moving average (SMA) in the middle
  • An upper band (SMA plus 2 standard deviations)
  • A lower band (SMA minus 2 standard deviations)

Typically, when the upper band is challenged, confirmed with other indicators, we can begin to make an argument for a potential pivot lower from the upper band.  Or, if the lower band is challenged, confirmed with other indicators, we can make an argument for a potential pivot higher from an oversold point.


Free “Dummies Guide” to Trading Options

Did you know trading options can actually be safer and more profitable than buying and selling stocks?

Best-selling author reveals his simple & safe way to start trading options in this FREE GUIDE.  It’s 100% free until the end of the month.

Access now.


For example, look at what has typically happened with the EUR/USD.

Each time the upper Bollinger Band (2,20) was touched or penetrated, confirmed with an overbought read on RSI, MACD, and Williams’ %R, the currency pivoted and moved lower.  Each time the lower Band (2,20) was touched or penetrated, confirmed with the same indicators, the currency pivoted and moved higher.

We can clearly see the same thing happens with even the S&P 500.

Up to 80% of the time, when that upper or lower band is even challenged, coupled with confirming indicators, we have seen a pivot.

It’s just another tool to be well aware of as you trade.

Special Bonus Gift:  Can You Control 100 shares of AAPL for less than $20 bucks?

That’s the power of trading options.  In the past, trading options was risky or confusing.  Not anymore. This guide – Simple Options Trading For Beginners – reveals a safe, simple and sane way to trade options.  Perfect for beginners.

Download Here.

Back