Day activity should be kept in mind and traders look to apply indicators to see value and substitutes are MA or Bollinger Bands, But for me it is only "Prior Behavior" and context which sets values below is the example where you will see that according to bollinger bands applied traders should be selling but if you look at the range price show momentum and after liquidation it keep going higher and value was shift higher.
It occurs because of what I call «Inequality principle»
It claims: «Different price levels are not equally important for the market». Do you feel what I’m talking about? Moving average or Bollinger bands can’t distinguish what price levels are more important for the market – it’s responsibility of a trader. Missing piece is market logic.
But period in the red circle was a final auction, overall trend was rising and market was no longer able to stay inside of a trading range. When market lacks selling liquidity, when nobody is going to sell, it start advertising higher searching for sellers. We often see that price is leaning to higher extremes and holds on higher prices.
How do you think – if auction is in place, can we say that this area is equally important for the market as area from previous day? Obviously, it is not – if selling liquidity is not enough, market loses equilibrium and searches for new area where balance can be found. We may pay too much attention to this area, but Bollinger Bands respects is as any other areas –
If we rely on idea of value from Bollinger Bands, we should sell because «value» is located below price. But in fact, proper calculation should like described below: value should not slowly move up, but it should make fast «gap» and it’s location is going to be somewhere in the center of congestion
As you see, our scenario completely changes when we look at the chart this way. We now should go long, because value is going up!
Totally different scenario which tells us that even though value builds higher but overall trend and <"Context is also important">. In this case Price Breaks the range but with no momentum and we can say least that price test the high of elongated candle but that in trading terms has no Range breakout traps are best suited with this example when price broke to the upside and then break to the downside and value again shifting to the lower site with floor finally broken as no panic to buy on the downside candles.