Ultimate Guide to Bollinger Bands – Learn Best Technical Analysis Indicator to Make Money in Stock MarketJul 11 2019
Statistical charts and graphs are used over time to characterize market price and volatility of securities. Bollinger bands are a popular methodical tool supports trading decisions. The article discusses more Bollinger band definition, history, and working.
What are Bollinger Bands?
Developed by John Bollinger, Bollinger bands are one of the popular where three lines are drawn, the middle line is a simple moving average that is generally set at 20 periods. The upper and lower lines are typically 2 standard deviations /- from a simple moving average. These are calculated on the basis of past volatility of the stock.
How Bollinger Bands was invented?
History of using trading bands and envelop is very old and interesting. Envelopes are made above and below the moving average in the price chart. Many techniques are used in past such as moving average envelope, KELTNER BAND Formula, etc. But the problem with most of these techniques is that they have placed bands in symmetrical distance from moving average and due to this symmetrical structure most of the price data isn’t covered. In early 1980, Bomar bands were introduced. Bomar bands cover 85 % of the price data. resolve this problem by covering 95% of price data inside the bands.
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How Bollinger Bands Works?
In Bollinger band price moves between upper and lower bands. If the price reaches near upper band stock becomes overbought and if the price reaches near the lower band it becomes oversold. The width of Bollinger bands changes based on volatility. If volatility increases the distance between both bands increases and if the volatility decreases, then the distance between band both bands decreases.
Unlike Oscillators such as RSI (Relative strength index), stochastics, etc. which only tells when stock becomes overbought or oversold, not only indicates about the stock is overbought or oversold but also predicts price targets of stocks.