The eSignal user tends to be an independent type, an investor / trader who wants to make his or her own decisions, often a do-it-yourselfer. It was with those characteristics in mind that we created the eSignal Bollinger Band Tool Kit. The BBTK presents a carefully-thought-out set of tools, techniques and systems that can be used alone or combined with other tools / techniques to create unique and powerful approaches to trading and investing. Inside the BBTK, you'll find a wide variety of indicators and trading systems:

• Bollinger Bands and variations
• Indicators derived from Bollinger Bands
• Systems employing Bollinger Bands
• Indicators normalized with Bollinger Bands
• Volume indicators

Much of the content of the tool kit comes directly from my book Bollinger on Bollinger Bands, www.bollingerbands.com/products/?type=book, and the book effectively serves as the manual for the tool kit.

It is the goal of the BBTK to serve as wide an audience as possible. Inside the tool kit, you will find systems, as well as tools for creating systems. Wherever possible, we have placed the variables at the core of the tools and systems at the disposal of the user, so you can adapt the tools to suit yourself. Just right click inside the chart where the study is, select "edit studies" from the menu and you'll be able to alter the approaches to suit your own unique risk and reward thresholds.

There are four trading systems, each of which focuses on a different aspect of Bollinger Bands -- one that looks for reversals, one that looks for the starts of trends, one that focuses on identifying explosive situations and one that trades breakouts.

Twenty years ago when I created Bollinger Bands, I never imagined that there might be so many applications for BBs. All I was looking for was a relative definition of high and low. Percentage and BandWidth, the main indicators derived from Bollinger Bands, were developed to quantify the bands and price action within them, and the rest is history. Today, there are more applications for Bollinger Bands than you can shake a stick at. For example, a recent search of the literature on Amazon turned up 985 citations, a fact that I find simply incredible.

The question as to how you will use this tool kit, is simply, "Who are you?" A short-term trader might apply these tools to 5-minutes bars, perhaps looking to identify congestion phases and trading the breakouts. A swing trader might focus on breakouts employing a trailing stop. An intermediate-term trader more interested in long positions might look for unconfirmed new lows. One of our favorite approaches is to look for setups where the bands are quite tight and then wait for a Sign of Strength or a Sign of Weakness to confirm the direction and potential of the setup.

I am often asked about the effectiveness of these tools and techniques, given their wide distribution and use. The fear is that the dissemination and adoption of this work will dilute its effectiveness. I think there is little chance of that for several reasons.

First, the basic work and conception are sufficiently robust. Volatility lies at the core of this analysis, and the tools and techniques are all derived from first principles.

Second, this work is sufficiently different from the rest of technical analysis that it plays but a small part in the panoply of competing tools and techniques at work at any given time. Even though this work is effective, so are other approaches, and investors and traders employ a very wide variety of techniques.

Third, were we to get to a situation where these tools and techniques became VERY popular, we might see some diminution in their effectiveness. However, that seems unlikely because the number and variety of investors and traders are simply too broad for any approach to achieve a large market share.

Fourth, because volatility is not a primary focus for many investors, few are comfortable employing it and / or depending on it. Price-based work will remain first and foremost in investors' minds.

Fifth, because so many other technical approaches are viable, investors and traders will tend to combine this work with other approaches and disciplines, creating new derivative approaches that have little correlation to the original ideas.

Finally, no two eSignal users will ever use the tool kit the same way. Each of you will adopt different tools according to your interests and then adapt those tools to suit your own preferences and criteria.

In short, the sheer diversity of investors and traders using the BBTK and the wide variety of competing techniques assures us that the Bollinger Band Tool Kit will not be diluted in effectiveness any time in the foreseeable future.

I am often asked whether the bands contain 95 percent of the price action as might be expected from statistical theory. The answer is, “No, they don't.” The reason is that prices of things financial are not distributed in a “normal” manner. There are far greater price changes, positive and negative, than one encounters in a normal distribution. This is known as having “fat tails”, and it means that less of the data will be found inside the bands than one might expect otherwise.

For example, in a test conducted for my book, we found, using daily data and 2-day, two standard deviation bands, that gold, the NASDAQ Composite, the Deutsch mark, the Dow Jones Industrial Average, IBM and several other series all had containment rates of approximately 87 percent. Thus, although the bands are based on regular statistical tools, a mean and standard deviation, they do not obey the normal statistical rules. This doesn't make them any less useful; it just means you need to be careful about the statistical assumptions you make when using them.

Users of eSignal will find an advanced charting template in the \eSignal directory called Bollinger.ach. This template illustrates a few of the basic Bollinger Bands ideas and takes advantage of the indicators in your \eSignal\Formulas\Bollinger directory. The Bollinger Bands Tool Kit itself can be found in the \eSignal\Formulas\BBTK directory.

I truly hope you enjoy the tool kit and find it useful in your practice. If you have any suggestions, requests for a new tool and / or techniques, please send them to bbands@BollingerBands.com.

Good trading!