How to interpret and trade with Bollinger Bands?
What are Bollinger Bands?
Bollinger Bands is a method developed by John Bollinger around the 1980s. The Bollinger Bands help traders to analyze price volatility and price momentum. The Bollinger Bands consist of the centerline that is the moving average of the price and upper and lower channels that adjust according to the price standard deviation.
To a trader's price standard deviation, volatility and momentum are essential concepts to understand. There is a direct relationship between standard deviation, price volatility, and price momentum. To many, price volatility means the price fluctuations or the degree of variation, or a measurement of price uncertainty. Standard deviation is a statistical term that determines the correlation of the price to the price mean. Price momentum is the rate of speed or the rate of price movement.
Calculation Method
Calculate a 20-day moving average for the centerline. Add 2 standard deviations to get the upper channel line. Subtract 2 standard deviations to get the lower channel line.
How to interpret Bollinger Bands?
Price has a tendency to return to the mean price. Price tends to walk along with the upper Bollinger band when a security is trading higher. Price tends to walk along with the lower Bollinger band when a security is trading lower. A breakout of the upper or lower Bollinger bands may indicate the price is moving too fast and may return to the mean price. The Bollinger Bands have a tendency to contract and consolidate before breaking out in either direction. The Bollinger Bands have a tendency to expand when the price is trending.
Thank you for reading!
Greenfield
Remember to click "Like" and "Follow!"
Disclosure: Article written by Greenfield. A market idea by Greenfield Analysis LLC for educational material only.
What are Bollinger Bands?
Bollinger Bands is a method developed by John Bollinger around the 1980s. The Bollinger Bands help traders to analyze price volatility and price momentum. The Bollinger Bands consist of the centerline that is the moving average of the price and upper and lower channels that adjust according to the price standard deviation.
To a trader's price standard deviation, volatility and momentum are essential concepts to understand. There is a direct relationship between standard deviation, price volatility, and price momentum. To many, price volatility means the price fluctuations or the degree of variation, or a measurement of price uncertainty. Standard deviation is a statistical term that determines the correlation of the price to the price mean. Price momentum is the rate of speed or the rate of price movement.
Calculation Method
Calculate a 20-day moving average for the centerline. Add 2 standard deviations to get the upper channel line. Subtract 2 standard deviations to get the lower channel line.
How to interpret Bollinger Bands?
Price has a tendency to return to the mean price. Price tends to walk along with the upper Bollinger band when a security is trading higher. Price tends to walk along with the lower Bollinger band when a security is trading lower. A breakout of the upper or lower Bollinger bands may indicate the price is moving too fast and may return to the mean price. The Bollinger Bands have a tendency to contract and consolidate before breaking out in either direction. The Bollinger Bands have a tendency to expand when the price is trending.
Thank you for reading!
Greenfield
Remember to click "Like" and "Follow!"
Disclosure: Article written by Greenfield. A market idea by Greenfield Analysis LLC for educational material only.
