The chart below is of American Express (AXP) from the start of 2008. You can see that for the most part, the price action was touching the lower band and the stock price fell from the $60 level in the dead of winter to its March position of around $10. In a couple of instances, the price action cut through the centerline (March to May and again in July and August), but for many traders, this was certainly not a buy signal as the trend wasn’t broken.
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In the 2001 chart of Microsoft (MSFT) below, you can see the trend reversed to an uptrend in the early part of January. But take a look at how slow it was in showing the trend change. Before the price action crossed over the centerline, the stock price moved from $20 to $24 and then on to between $24 and $25 before some traders would have confirmation of this trend reversal.
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This is not to say that Bollinger Bands® aren’t a well-regarded indicator of overbought or oversold issues, but charts like the 2001 Microsoft layout are a good reminder that we should start out by recognizing trends and simple moving averages before moving on to more exotic indicators.