Bollinger Bands
Bollinger Bands Technical Indicator
Section titled “Bollinger Bands Technical Indicator”The Bollinger Bands Technical Indicator (BB) is similar to Envelopes, but with some differences. While Envelopes plot bands a fixed distance away from the moving average, Bollinger Bands plot bands a certain number of standard deviations away from it. This adjustment to market conditions allows the bands to widen during more volatile periods and contract during less volatile periods.
Interpretation and Features
Section titled “Interpretation and Features”Bollinger Bands are typically plotted on the price chart, but can also be added to the indicator chart. The interpretation of the Bollinger Bands is based on the observation that prices tend to remain between the top and bottom lines of the bands. Notably, the width of the Bollinger Bands varies based on price volatility. During high volatility, the bands widen, providing more room for prices to move. Conversely, during periods of low volatility, the bands contract, keeping prices within their limits.
Components of Bollinger Bands
Section titled “Components of Bollinger Bands”Bollinger Bands consist of three lines: the middle line (ML), which is a usual Moving Average; the top line (TL), which is the middle line shifted up by a certain number of standard deviations (D); and the bottom line (BL), which is the middle line shifted down by the same number of standard deviations.
Recommended Parameters
Section titled “Recommended Parameters”For optimal use, it is recommended to use a 20-period Simple Moving Average as the middle line and plot the top and bottom lines two standard deviations away from it. Moving averages with less than 10 periods have limited effectiveness.