Lessons from Trading with Bollinger Bands
My experience trading with Bollinger Bands, Keltner Channels, and similar indicators is that they often work flawlessly for a while, but then a colossal loss can wipe out all previous gains—and more. I wrote a story to illustrate this experience, which I’m sure many of you can relate to.
The Illusion of Market Mastery
John returns from the break room with a paper coffee cup in one hand and a donut in the other. As he walks past Carter Data’s trading station, he’s startled by two pink and green lines on all the stock charts. Curious and clueless, he tries to figure out what they mean. “Carter, what are those tacky lines on your charts?”
Carter smiles and replies, “They’re Voss Bands, John. A technical indicator that signals extreme high and low price zones. They make the charts look pretty professional, don’t they?” he adds proudly.
John takes in the information and, in his usual style, remarks, “Boss Bands, huh? That’s cool! Didn’t know the market could be bossed around.”
Maxwell Dither, always tuned into every conversation, has little patience for John Spinner’s ignorance. “Don’t make a fool of yourself, John! Voss Bands—named after the creator, Steve Voss. It’s obvious you’ve never read a technical analysis book in your life. Or any book, for that matter…”
Ryder Riskmore, ever subtle and with a sharp eye for what really matters, puts Carter on the spot. “Carter, have you actually made any money with those lines?”
Carter shifts in his chair, adjusts his round glasses, nervously brushes his hair from his forehead, blushes slightly, and replies, “What’s been happening is I win three, four, five times in a row, and everything seems to be going great. But then, suddenly, I have a colossal loss that wipes out all the gains... I don’t know if I’ve been unlucky or...”
Mortimer Sagecroft, weary from watching these market novices lose money in every possible way, steps in. “Do you really think a line on a chart is going to contain the market? You remind me of kids at the beach building a wall to stop the rising tide. It holds the first wave, maybe the second, and then… The market goes where it has to go, and no line on a chart is going to stop it. Got it?”
Common sense is scarce on the trading desk, and Mortimer tries to impart his wisdom and experience in a way these poor souls might understand.
PS: If you enjoyed this story, you can find many similar ones in my collection, Trading Tales.
