The timing of entry and exit may be made based on numerous signals. One that often is overlooked in the trend in the t-line and more specifically, how that trend moves in relation to the Bollinger middle band.
The middle band is a 20-day simple moving average, whereas the t-line is an 8-day exponential moving average. Since month of these are fairly short-term in nature you would expect to see a close tracking tendency between the two. However, when the two average begin moving apart (divergence) and then later, back together (convergence) this acts as a confirming signal, especially of continuation for the current trend. This further helps in the timing of options entry and exit.
An example of this signal is found in the chart for Intuitive Surgical.
The Bollinger middle band is the broken blue line and it always resides exactly halfway between the upper and lower bands (solid blue lines). The t-line is the red line that closely tracks the middle band, but not always.
By the third week of April, price had been consolidating between $310 and $310 for nearly two months. However,
The highlighted area reveals a sharp divergence as the t-line moved strongly away from the t-line. In this case, the t-line represented rising support and upper Bollinger band was rising resistance. The uptrend did not end until the third week of September, and this was confirmed by the closing of the gap between t-line and middle Bollinger band. This convergence occurred as price moved below the t-line, a signal of either retracement or reversal. In either case, any open bullish options should be closed at this point.
Two more examples of divergence were found, one late in October as the trend once again began moving in a narrow channel between t-line and upper Bollinger band, and as the t-line diverged away from the middle Bollinger band. This confirmed the uptrend.
A final example of divergence was seen in mid-December. The long black candlestick signaled the reversal point and beginning of a new downtrend. This was not confirmed until around December 11, when the t-line moved below the t-line and continued declining. In this bearish trend, the channel was defined by the t-line as falling resistance and the lower Bollinger band as falling support.
This tendency for continuation and reversal to form yup as narrow channels is confirmed by the interaction between the t-line and the middle Bollinger band. This makes it possible to identify the most opportune point for a trade, especially for exit as one trend ends or weakens. The value of a combined signal that reveals changing status of the t-line and the middle Bollinger band is the key to this. Most forms of technical analysis involving Bollinger tend to pay close attention to movements above the upper band or below the lower band. In this case, the proximity of the middle band to the t-line provides insight and forecasting even when the price continues to trade within the Bollinger trading range.