Pattern Recognition

Pattern recognition refers to the process by which we recognize recurring events.

Typically such events have a signature consisting of a number of discrete pieces that, when combined in specific sequences, allow us to recognize the pattern and act upon it.

These patterns rarely, if ever, repeat exactly. Rather, they are only generally the same, and there lies the rub.

In order to be successful at pattern recognition, we need some framework within which these patterns can be analyzed.

--> Bollinger Bands can provide that framework!

The literature of technical analysis is rife with descriptions of technical patterns.

- Double bottoms/tops

- Head-and-shoulders (regular or inverted)

- Ascending/Descending triangles

- ...

Some patterns imply trend reversals, and others are continuation patterns.

BBS can aid in pattern recognition by providing definitions: high and low, calm or volatile, trending or not definitions.

As the patterns evolve, the bands evolve right along with them, providing a relative, flexible framework rather than the absolute, rigid framework imposed by the grid of a chart or the hardness of a trend line.

Securities rarely transition from bullish phases to bearish phases or vice versa in an abrupt manner.

The transitions usually involve a sequence of price action that typically includes one or more tests of support or resistance.

Bollinger Bands can dramatically clarify the patterns you see on the charts.

An ideal W is a momentum low that occurs outside the lower BB, followed by a price low inside the lower BB.

Even if the final price low has driven to a new absolute low, it is not a new low on a relative basis.

Therefore the ensuing rally can be acted upon without the emotion usually coincident with a new low in price.

Although one of the most important uses of Bollinger Bands is in diagnosing tops and bottoms, there are other important pattern-recognition uses:

- identifying continuing trends

- defining trading ranges

- recognizing The Squeeze.

Pattern recognition is the key to successful technical investing.

And Bollinger Bands, especially when coupled with indicators, are the key to successful pattern recognition.