Try Trading Bollinger Bands This Way
Bollinger bands represent one of the basic indicators to know in technical analysis. However, there are many ways of using it. This article presents a technique to be applied on Bollinger bands.
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What Are Bollinger Bands?
Bollinger Bands are a popular technical analysis tool used by traders and investors to analyze the volatility and potential price movements of a financial asset, such as stocks, currencies, or commodities. They were developed by John Bollinger in the 1980s and have since become widely used in the financial industry.
Bollinger Bands consist of three lines plotted on a price chart: a middle band, an upper band, and a lower band. The middle band is typically a simple moving average (SMA) of the asset’s price over a specified period. The upper and lower bands are calculated by adding and subtracting a specified number of standard deviations from the middle band.
The standard settings for Bollinger Bands use a 20-period SMA and a standard deviation of 2. However, traders can adjust these settings based on their preferences and the characteristics of the asset they are analyzing. For example, some traders may use a shorter or longer time period for the SMA and a different number of standard deviations.
The purpose of Bollinger Bands is to provide a visual representation of the volatility of the asset’s price. When the price is more volatile, the bands expand, and when the price is less volatile, the bands contract. The distance between the upper and lower bands indicates the range within which the price is…