Bollinger Bands

Bollinger Bands (BB) is a technical indicator, that resembles the functions of Envelopes. It is developed by John Bollinger, and represents volatility bands placed above and below a moving average. The only difference between BB and Envelopes is that the bands of Envelopes are plotted a fixed distance (%) away from the moving average, while the Bollinger Bands are plotted a certain number of standard deviations away from it. Volatility is based on standard deviation, so the Bollinger Bands is adaptable to the market conditions. When the markets become more volatile, the bands widen and they contract during less volatile periods.

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Bollinger bands

Bollinger Bands are usually plotted on the price chart, but they can be also added to the indicator chart (Custom Indicators). Similar to the Envelopes, the interpretation of the Bollinger Bands is based on the fact that the prices tend to remain in between the top and the bottom line of the bands. A distinctive feature of this technical indicator indicator is its variable width due to the volatility of prices. When we have significant price changes, the bands widen leaving a big space for the prices to move in. During periods without movement, or the periods of low volatility the band contracts keeping the prices within their limits.

 

 

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