Description

Bollinger Bands (BB) is a type of technical analysis indicator that measures the volatility of a security. It is a popular indicator used by both novice and experienced traders to identify potential trading opportunities. Bollinger Bands are typically composed of three lines that are plotted on a price chart. The middle line is a simple moving average (SMA) of the security's price, while the upper and lower bands are two standard deviations (SD) away from the SMA.

Bollinger Bands are used to measure the volatility of a security. Volatility is the amount of price movement of a security over a given time period. By using Bollinger Bands, traders can get a better sense of the current trend and its strength. They can also identify potential trading opportunities by looking for breaks in the bands.

The middle line of Bollinger Bands is a simple moving average (SMA). This is the average price of the security over a given time period. The upper and lower bands are two standard deviations (SD) away from the SMA. These bands are used to measure the volatility of the security. When the price of the security moves closer to the upper band, it indicates that the security is becoming more volatile. Conversely, when the price of the security moves closer to the lower band, it indicates that the security is becoming less volatile.

Bollinger Bands can be used to identify potential trading opportunities. When the price of a security breaks above the upper band, it is a signal that the security is becoming overbought and could be a good time to sell. Conversely, when the price of a security breaks below the lower band, it is a signal that the security is becoming oversold and could be a good time to buy.

In addition to identifying potential trading opportunities, Bollinger Bands can also be used to identify potential support and resistance levels. When the price of a security is near the upper band, it is a signal that the security could be approaching a potential resistance level. Similarly, when the price of a security is near the lower band, it is a signal that the security could be approaching a potential support level.

In summary, Bollinger Bands are a type of technical analysis indicator used to measure the volatility of a security. It is composed of three lines, a simple moving average (SMA) and two standard deviations (SD) away from the SMA. Bollinger Bands are used to identify potential trading opportunities by looking for breaks in the bands, as well as potential support and resistance levels.

The Bollinger Band Squeeze Indicator

The Bollinger Band Squeeze occurs when the distance between the upper and lower bands narrows significantly. This indicates a period of low volatility and suggests that a breakout or substantial price movement may be imminent. The squeeze happens when the price consolidates within a tight range, and the Bollinger Bands "squeeze" together, visually reflecting the reduction in volatility.

Calculation

The Bollinger Bands are a technical trading indicator used to identify potential buy and sell points. The calculation of the Bollinger Bands is based on a simple moving average (SMA) and a standard deviation above and below the SMA. The formula for calculating the Bollinger Bands is as follows:

• Upper Band = 20-day SMA + (2 x Standard Deviation)
• Lower Band = 20-day SMA - (2 x Standard Deviation)

Where the 20-day SMA is the simple moving average of the closing prices over the last 20 days and the standard deviation is a measure of the volatility of the market.

To calculate the Bollinger Bands, first calculate the 20-day SMA by adding the closing prices of the last 20 trading days and dividing by 20. Then calculate the standard deviation of the last 20 closing prices. Finally, add twice the standard deviation to the 20-day SMA to get the Upper Band, and subtract twice the standard deviation from the 20-day SMA to get the Lower Band.