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The Bollinger band is a commonly used technical indicator that can provide a number of different signals and pieces of information to traders. Falling into the bands and channels category, the Bollinger has the benefit of taking place on the price, rather than separate from it, thus providing dynamic support and resistance. That dynamic support and resistance element provides one of the most important functions of the Bollinger band, with the vast majority of price action taking place within the upper and lower limits.
The Bollinger rejection takes place when the price unsuccessfully attempts to break through the upper or lower limits of the Bollinger, instead choosing to reverse towards the middle band – the 20-hour simple moving average (SMA) - or lower threshold of the indicator.
Looking at the chart below, we can see a two month period of time where Brent crude utilised the Bollinger to great effect. The move into that consolidation started with price action piercing through the upper Bollinger band on three consecutive days, highlighting the willingness to operate within a more trending phase. The break back into the bands, with the fall below the 20-hour SMA highlighting the fall out of a trending phase and into a period of consolidation.
From there, we saw two months of tightening price action, with both support and resistance being supplied by the indicator over a period of two months. This provides a host of buying and selling opportunities within an intraday basis. The breakout from this phase is clear cut, with the price closing well outside the lower Bollinger band. However, the critical secondary element of the breakout comes with a closed candle below the $54.54 swing low. Just like how the initial uptrend is signaled by a strong close above the upper band, we have now seen a bearish signal come via a close below the first major swing low out of the symmetrical triangle formation.