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Another important rule that applies to multiplication involves how the factors are grouped when you have three or more of them You can lump the factors together any way you want, and you ll always end up with the same product The simplest case, called the associative law for multiplication, involves a product of three factors

tees, but it s possible that the expanding Bollinger Bands is a signal that the market could reverse direction The market doesn t usually remain in such a highly volatile period for long Periods of high volatility are often followed by low volatility For Short-Term Traders If you re a short-term trader, there are many other features that make Bollinger Bands so popular Obviously, there isn t enough room to discuss them all, but I will leave you with this small nugget: The upper and lower bands can also serve as support and resistance for individual stocks If a stock breaks below support, it could mean the start of a downward trend And if the stock breaks out above resistance, it could mean the start of an upward trend Advanced hint: John Bollinger has suggested that traders change the default settings Instead of using the defaults of 20 and 2, you would use a 50-period moving average and 21 for the standard deviation (Note: A chart of Bollinger Bands is located in 12) If you re thinking about the best way to use Bollinger Bands when trading stocks or indexes, then you ll be pleased to meet my next guest, trader and investor John Bollinger, who created Bollinger Bands He stopped by to explain other creative ways to use his indicator

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It works when you multiply Here s how a mathematician would formally state the associative law in its most basic form For any three integers a, b, and c

A( 2 ) A( 3 ) A( 4 ) A( 5 ) A( 6 ) A( 7 )

(ab)c = a(bc) For instance: (3 5) 2 = 15 2 = 30 and 3 (5 2) = 3 10 = 30 This works whether the numbers are positive, negative, or 0 It also works if there are more than three numbers in a product, as long as there aren t infinitely many

When John Bollinger started in the financial business in the early 1980s, percentage bands were wildly popular It was simply a moving average reflected above and below itself by some percentage, Bollinger recalls You might also have a line that was 7 percent above the average and another line that was 7 percent below the average Those would be 7 percent percentage bands

It fails when you divide In division, as in subtraction, the way in which you group the integers or variables is important Consider this:

010 011

(16/4)/2 = 4/2 = 2 but 16/(4/2) = 16/2 = 8 For any three integers a, b, and c, it is not necessarily true that (a /b)/c = a /(b /c) The associative law hardly ever works with division

100 101

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Look at another expression where we have to divide more than once, and see what happens when we insert parentheses in different places Let s try this: 4,000/40/10/5 Going straightaway from left to right, we get 4,000/40 = 100, then 100/10 = 10, and finally 10/5 = 2 Now let s think of it this way: (4,000/40) / (10/5)

In this case, it simplifies to 100/2 = 50 Now let s try this: 4,000 / (40/10) / 5 We do the division in parentheses first, getting 4,000/4/5 Starting at the left, we get 4,000/4 = 1,000 Then dividing 1,000 by 5 gives us 200

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