Looking to understand Bollinger Bands®? These characteristics of Bollinger Bands in technical charts can help you to generate profits.
Bollinger Bands® are most powerful, reliable & a common technical indicators used in technical analysis. It was originally created by John Bollinger in 80s. These are usually drawn around the prevailing price of a trading stock, bond or foreign exchange.
According to a post published in The Balance, Bollinger bands can help you to establish trend direction, spot potential reversals and monitor volatility.
You just need to interpret this technical indicator rightly along with various other technical tools. This trading strategy will ultimately help you to make better trading decisions on time. Here are 15 basic guidelines of using Bollinger Bands in technical analysis:
[You can also watch an exciting video on this post from GetUpWise channel on YouTube.]
(1) Basic Structure Of Bollinger Bands
It is one of the most basic characteristics of Bollinger Bands in technical charts. Bollinger Bands® are two price channels that are displayed above & below the center line.
The center line or middle band is a simple moving average. It is usually a trend indicator. In default settings, the upper band is plotted 2 standard deviations above the middle band.
However, the lower band is plotted 2 standard deviations below the middle band. The middle band is usually a 20 day simple moving average. They are plotted as follows:
Upper band = Middle band + 2 standard deviations
Middle band = 20-period simple moving average
Lower band = Middle band – 2 standard deviations
- Bollinger Band Analysis: MSGraphics