Bollinger Bands

Average directional index A. Blue Chip Stocks Definition: Suggest a new Definition Proposed definitions will be considered for inclusion in the Economictimes. The upper and lower bands show the volatility of the price , because they are based on standard deviation calculations. Along the way we got another fine example of envelopes, Donchian bands, which consist of the highest high and lowest low of the immediately prior n-days. For calculation of Bollinger Bands, the following variables are required: If these indicators confirm the recommendation of the Bollinger Bands, the trader will have greater conviction that the bands are predicting correct price action in relation to market volatility.

In this example of Bollinger Bands®, the price of the stock is bracketed by an upper and lower band along with a day simple moving average. Because standard deviation is a measure of volatility, when the markets become more volatile, the bands widen; during less volatile periods, the bands contract.

Introduction

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Bollinger Bands consist of a middle band with two outer bands. The middle band is a simple moving average that is usually set at 20 periods. A simple moving average is used because the standard deviation formula also uses a simple moving average. Definition: Bollinger Bands is one of the popular technical analysis tools, where three different lines are drawn, with one below and one above the security price line. Its specific period moving average is denoted as midline to form an ‘envelope’. This bollinger band strategy is a continuation trading strategy that also uses the 20 period moving average of the bands for trend direction. Bollinger bands are a good measure of volatility of the instrument you are trading and we can use this to form the basis of a swing trading system for Forex or any other market.