Forex

Bollinger Bands

Hi there!

We are not far from the Moving average based indictors yet, Our indicator today (like the most of popular indicators) based on moving average and its species.

In the early of 80s, John Bollinger invented the Bollinger Bands indicator. The Bollinger Bands indicator uses the Moving Average indictor (Simple Moving Average) to draw a centerline and two bands (Figure 1). The two bands lines are plotted at standard deviation levels above and below a moving average. The result is an envelop or channel indicator that show the overbought and oversold levels of the market and it can act as support - resistance indicator.

What’s the standard deviation?

The standard deviation is a method to measure the market volatility by measuring the tendency of data to be spread out.
It calculates how widely values (closing prices for example) are dispersed from the average. The larger the difference between the closing prices and the average price, the higher the standard deviation will be and the higher the volatility. The closer the closing prices are to the average price, the lower the standard deviation and the lower the volatility.