Blue chip stocks generally cost high, as they have good reputation and are often market leaders in their respective industries. Since then the term has been used to refer to highly-priced stocks, but now it is used more commonly to refer to high-quality stocks.
These are stocks that generally deliver superior returns in the long run. Some people also relate blue chip stocks to blue betting disks in the game of poker, where the blue disk has the highest value while the white one has the lowest. Several parameters can be considered to identify blue chip companies. They include consistent annual revenue over a long period, stable debt-to-equity ratio, average return on equity RoE and interest coverage ratio besides market capitalisation and price-to-earnings ratio PE.
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Definition: Bollinger Bands is one of the popular technical analysis tools, where three different lines are drawn, with one below and one above the security price line. These lines show a band or a volatility range in which a particular security price is moving up or down.
Bollinger Bands was developed by John Bollinger in the mid s and he trademarked this term in Initially, it was called trading bands, but later on, John Bollinger evolved this concept and called it Bollinger Bands. Description: Bollinger Bands shows the levels of different highs and lows that a security price has reached in a particular duration and also its relative strength, where highs are near to the upper line and lows are near to lower line.
The bandwidth widens and narrows depending on volatility. These bands show oversold and overbought conditions in relation to a selected time period moving average.
Bollinger Bands are somewhat like moving average envelopes, but drawing calculations for both is different. In Bollinger Bands, standard deviation levels are considered to draw the upper and lower lines, whereas for Moving Average Envelopes, the lines are plotted by taking a fixed percentage.
Typically traders use day simple moving average with a standard deviation of 2. Some traders may use exponential moving average too. Momentum oscillators and moving averages are of little value during a consolidation because these indicators simply flatten along with price action. Signs of accumulation increase the chances of an upside breakout, while signs of distribution increase the chances of a downside break.
The bands moved to their narrowest range in months as volatility contracted. Negative readings in Chaikin Money Flow reflect distribution or selling pressure that can be used to anticipate or confirm a support break in the stock. During the squeeze, notice how On Balance Volume OBV continued to move higher, which showed accumulation during the September trading range.
Signs of buying pressure or accumulation increased the chances of an upside breakout. Before breaking out, the stock opened below the lower band and then closed back above the band. Notice that a piercing pattern formed, which is a bullish candlestick reversal pattern.
This pattern reinforced support and the follow-through foreshadowed the upside breakout. A bullish head fake starts when Bollinger Bands contract and prices break above the upper band. This bullish signal does not last long because prices quickly move back below the upper band and proceed to break the lower band. A bearish head fake starts when Bollinger Bands contract and prices break below the lower band. This bearish signal does not last long because prices quickly move back above the lower band and proceed to break the upper band.
The Bollinger Band Squeeze is a trading strategy designed to find consolidations with decreasing volatility. In its purest form, this strategy is neutral and the ensuing break can be up or down. Chartists, therefore, must employ other aspects of technical analysis to formulate a trading bias to act before the break or confirm the break. Bollinger bands are calculated using three lines drawn onto a price chart.
The first line is the SMA of an assets's price, usually within a day period. The upper band is the SMA plus two standard deviations, while the lower band is the SMA minus two standard deviations. To calculate the SMA, you would take the closing prices for the number of days that you were looking at — normally 20 days — and divide the total sum of all the closing prices by the total number of days.
Most trading platforms will calculate Bollinger bands for you automatically, but it is still useful for a trader to know what the different bands mean and what can be learnt from them. Many traders believe that Bollinger bands are an accurate indicator of market volatility. If the bands are wider, it means that a market is more volatile; while narrower bands mean that a market is more stable.
Conversely, bounces — which occur when the price movement hits the upper band and bounces back down — might be indicative of an upcoming retracement. The information they provide should be used in conjunction with other forms of analysis. Bollinger bands can be useful indicators of a trend in a market — strong trends cause volatility, which is easy to see as the Bollinger bands widen and narrow. When plotted automatically by a trading platform, Bollinger bands are very user-friendly and can add another dimension to chart analysis for a trader.
This means that traders might not receive signals until the price movement is already underway. Technical analysis is only one approach to analyzing stocks. When considering which stocks to buy or sell, you should use the approach that you're most comfortable with.
As with all your investments, you must make your own determination as to whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation.
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