Bollinger Bands and Fibonacci Ratios

by Brian Brown, 4946 days ago		Share \|

Another technical analysis tool that is based on the standard Bollinger Bands indicator is the Fibonacci Bollinger Bands. It is almost the same as the standard Bollinger Bands with the difference that instead of using the standard deviation to calculate the volatility of the asset, the Fibonacci Bollinger Bands uses Wilders Smoothed indicator (Wilder Volatility Index - Average True Range), also known as ATR - Average True Range.

Once the Wilders Smoothed value, ATR, is calculated, three upper bands and 3 lower bands are created by multiplying this ATR value with positive and negative Fibonacci factors and then adding the result to the middle band, which is based on the simple moving average of the close price. These Fibonacci factors are: 1.618, 2.618 and 4.236.

The trading indicator name is "bbandsFibo" and the 7 lines that compose the Fibonacci Bollinger Bands can be created using the following formula:

per = 20;
bbf = BbandsFibo(per);
UpperBand3 =SMA(close, per) + ( 4.236 * bbf);
UpperBand2=SMA(close, per) + ( 2.618 * bbf);
UpperBand1=SMA(close, per) + ( 1.618 * bbf);
MidPoint0=SMA(close, per);
LowerBand1=SMA(close, per) - ( 1.618 * bbf);
LowerBand2=SMA(close, per) - ( 2.618 * bbf);
LowerBand3=SMA(close, per) - ( 4.236 * bbf);

Plot(MidPoint0,"",colorGreen);
Plot(UpperBand1,"",colorRed);
Plot(LowerBand1,"",colorRed);
Plot(UpperBand2,"",colorAqua);
Plot(LowerBand2,"",colorAqua);
Plot(UpperBand3,"",colorYellow);
Plot(LowerBand3,"",colorYellow);

The Bollinger Bands Fibonacci Ratios indicator is used in stock, commodity and Forex trading and it can be added to a trading system to detect price reversals, which often occur when the stock or commodity price touches the upper (crosses above) or lower band (crosses below). These bands widen when the volatility as measured by the Average True Range becomes higher and decreases as the volatility of the asset decreases.

Another technical indicator derived from the Bollinger Bands can be downloaded here Percent Bollinger Bands. For Fibonacci-based indicator, you can download Fibonacci Trading with the Retracement Levels/Ratios and Fibonacci retracement: Golden ratio