Bollinger Bands
What are Bollinger Bands?
Section titled “What are Bollinger Bands?”Bollinger Bands (BB) are a technical analysis tool used to measure volatility in the market. They are similar to Envelopes, but with a few key 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.
How do Bollinger Bands work?
Section titled “How do Bollinger Bands work?”Bollinger Bands adjust themselves to market conditions. When the market becomes more volatile, the bands widen, and they contract during less volatile periods. The width of the bands is variable, providing an indication of price volatility.
Interpreting Bollinger Bands
Section titled “Interpreting Bollinger Bands”Bollinger Bands are typically drawn on the price chart, but can also be added to the indicator chart. The interpretation is based on the observation that prices tend to remain between the top and bottom lines of the bands. In periods of high volatility, the bands widen, allowing for greater price movement. In periods of low volatility, the bands contract, keeping prices within their limits.
Key Traits of Bollinger Bands
Section titled “Key Traits of Bollinger Bands”The Bollinger Band indicator has a variable width due to price volatility. It provides a useful forecast of price guideposts, helping traders anticipate potential price movements.