Bollinger Bands is a technical analysis tool invented by John Bollinger in the 1980s, and a term trademarked by him in 2011. Having evolved from the concept of trading bands, Bollinger Bands and the related indicators %b and bandwidth can be used to measure the highness or lowness of the price relative to previous trades.
Bollinger Bands consist of:
- an N-period moving average (MA)
- an upper band at K times an N-period standard deviation above the moving average (MA + Kσ)
- a lower band at K times an N-period standard deviation below the moving average (MA − Kσ)
Typical values for N and K are 20 and 2, respectively. The default choice for the average is a simple moving average, but other types of averages can be employed as needed. Exponential moving averages are a common second choice. Usually the same period is used for both the middle band and the calculation of standard deviation.
Read more about Bollinger Bands: Purpose, Indicators Derived From Bollinger Bands, Interpretation, Effectiveness, Statistical Properties, Bollinger Bands Outside of Finance
Famous quotes containing the word bands:
“While they were there, the time came for her to deliver her child. And she gave birth to her firstborn son and wrapped him in bands of cloth, and laid him in a manger, because there was no place for them in the inn.”
—Bible: New Testament, Luke 2:6,7.