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Bollinger Bands


Bollinger Bands   Bollinger Bands are a type of envelope (or trading band) plotted at standard deviation levels above and below a moving average. Plus or minus two standard deviations where the standard deviations are calculated historically in a moving window estimation. Hence, the bands will widen if the most recent data is more volatile. If the prices break out of the band, this is considered a significant move.

Because standard deviation measures volatility, the bands widen during volatile markets and contract during calmer periods.
 


Additional comments:

Mr. Bollinger notes the following characteristics of Bollinger Bands:

- Sharp price changes tend to occur after the bands tighten, after volatility lessens.

- When prices move outside the bands, a continuation of the current trend is implied. Bottoms and tops made outside the bands followed by bottoms and tops made inside the bands call for reversals in the trend.

- A move that originates at one band tends to go all the way to the other band. This observation is useful when projecting price targets.

- Bollinger Bands are displayed in two bands which are plotted at standard deviation levels above or below a moving average.

- Bollinger Bands provide a view of the current trading range. They can be used with other indicators to determine when it's time to buy or sell.

Related Terms

Upper Indicators
Choose from several popular technical indicators. The indicators are: - Bollinger Bands - Parabolic SAR - MA Envelopes - Volume by Price ...


Historic Volatility
Calculated by using the standard deviation of underlying asset price changes from close-to-close of trading going back 21 to 23 days. A ...


Fibonacci Retracement
Where prices on a chart move off their latest tops or bottoms in swings of 38.2%, 50%, or 61.8% from their ...






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