Similar to Moving Average Envelopes, the Bollinger Bands(BB) are plotted at 2 standard deviations above and below a 20-day exponential moving average. As standard deviation is a measure of volatility, the bands are self-adjusting: widening during volatile markets and contracting during calmer periods.
As a rule, prices are considered to be "overbought" when they touch the upper band. They are considered "oversold" when they touch the lower band. Using two standard deviations ensures that 95% of the price data will fall between the two trading bands.
The simplest way to use Bollinger Bands is to use the upper and lower bands as price targets. In other words, if prices bounce off the lower band and cross above the 20 day average, then the upper band becomes the upper price target.
A crossing below the 20 day average would identify the lower band as the downside target. In a strong uptrend, prices will usually fluctuate between the upper band and the 20 day average. In that case, a crossing below the 20 day average warns of a trend reversal to the downside.
Developed by John Bollinger, Bollinger Bands are among the most popular trend identification indicators.
John Bollinger noted - a move that originates at one band tends to go all the way to the other band. This observation is useful when projecting price targets.
Calculation:
Deviation = Standart Sapma çarpanı
Inputs:
Data Array = Close
Indicates Open, High, Low or Closing price.
Period = 20
Indicates time period(the number of days for daily analysis, the number of weeks for weekly analysis, etc.).
Deviation = 2
Indicates standard deviation value.
Moving Average Type = Simple
Indicates the type of moving average which will be used in the calculation of middle band.
Horizontal Shift = 0 (Valid only in MyChart.)
Used to shift the values backward or forward on the time scale.
Indicator Type: Volatility