Bollinger Band
Bollinger bands is commonly used volume indicator, created by John Bollinger, that can show you not only what direction prices are going but also how volatile the price movement is. Bollinger bands consist of two bands—an upper band and a lower band—and a moving average that are generally plotted on the price movement of a chart.
Bollinger bands are typically based on a 20-period moving average. This moving average runs through the middle of the two bands. The upper band is plotted 2 standard deviations above the 20period moving average. The lower band is plotted 2 standard deviations below the 20period moving average.
Bollinger bands are typically based on a 20-period moving average. This moving average runs through the middle of the two bands. The upper band is plotted 2 standard deviations above the 20period moving average. The lower band is plotted 2 standard deviations below the 20period moving average.
Here is this Bollinger Band formula:
BOLUP=MA(TP,n)+m∗σ[TP,n]
BOLDN=MA(TP,n)−m∗σ[TP,n]
where:BOLUP=Upper Bollinger Band
BOLDN=Lower Bollinger Band
MA=Moving average
TP (typical price)=(High+Low+Close)÷3
n=Number of days in smoothing period (typically 20)
m=Number of standard deviations (typically 2)
σ[TP,n]=Standard Deviation over last n periods of TP
When to use…
1) Sharp price changes tend to occur after the bands tighten, as volatility lessens.
2) When prices move outside the bands, a continuation of the current trend is implied.
3) Bottoms and tops made outside the bands followed by bottoms and tops made inside the bands call for reversals in the trend.
1) Sharp price changes tend to occur after the bands tighten, as volatility lessens.
2) When prices move outside the bands, a continuation of the current trend is implied.
3) Bottoms and tops made outside the bands followed by bottoms and tops made inside the bands call for reversals in the trend.
Breakouts
Approximately 90% of price action occurs between the two bands. Any breakout above or below the bands is a major event. The breakout is not a trading signal. The mistake most people make is believing that that price hitting or exceeding one of the bands is a signal to buy or sell. Breakouts provide no clue as to the direction and extent of future price movement.
The rules are simple:
• Enter when price closes above the upper Bollinger Band
• Exit when price closes below the lower Bollinger Band
• Enter when price closes above the upper Bollinger Band
• Exit when price closes below the lower Bollinger Band
