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    Bollinger Band

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    aauani
    Bollinger Bands are an indicator used to identify overbought and oversold levels based on price volatility. They consist of a middle band and upper and lower bands that are set at standard deviations above and below the middle band. Crossing the upper or lower bands can signal trend reversals.

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    Bollinger Band

    Uploaded by

    aauani
    96 views6 pages
    Bollinger Bands are an indicator used to identify overbought and oversold levels based on price volatility. They consist of a middle band and upper and lower bands that are set at standard deviations above and below the middle band. Crossing the upper or lower bands can signal trend reversals.

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    Bollinger Bands are an indicator used to identify overbought and oversold levels based on price volatility. They consist of a middle band and upper and lower bands that are set at standard deviations above and below the middle band. Crossing the upper or lower bands can signal trend reversals.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    96 views6 pages

    Bollinger Band

    Uploaded by

    aauani
    Bollinger Bands are an indicator used to identify overbought and oversold levels based on price volatility. They consist of a middle band and upper and lower bands that are set at standard deviations above and below the middle band. Crossing the upper or lower bands can signal trend reversals.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 6

    Bollinger Band

    What is Bollinger Band?


    Bollinger Bands, one of the most popular indicators, is an envelop around stock price
    indicating price range of the stock based on stock volatility. When price moves towards
    upper band it is often considered as overbought and when it is near lower range it is
    considered as oversold.

    Who created Bollinger Band ? John Bollinger a noted technical analyst invented
    Bollinger Bands. His finding was influenced by J.M. Hurst's who came with notion of
    trading envelop around stocks.

    What are the components of Bollinger band? Bollinger band has three important
    dynamic lines
    1. Middle Bollinger Band - This is a plot of 20 period simple moving average.
    2. Lower Bollinger Band - Middle band - 2 * 20 period standard Deviation.
    3. Upper Bollinger Band - Middle band + 2 * 20 period standard Deviation.
    Concept of Bollinger BandBollinger Band indicates volatility around price of a
    stock. When price reaches upper band it is considered as overbought and
    could be a good exit point and when stock approaches lower band it is
    considered as good entry point.

    These are highs/lows or support and resistance. When stock has high price
    fluctuation the band expands and when volatility is low they contract to adjust
    with change in price volatility.

    In normal distribution, 68% of the time price should be within one standard
    deviation and 95% of the time it should be within two standard deviation.
    Usages of Bollinger Banda. They provide excellent support and resistance
    in sideways market . To identify sideways market look for stocks where 50/100
    DMA is flat (parallel to date axis).

    b. They can be used for to determine trend reversal. When stock breaks upper
    band and stay above it for few trading sessions then it is considered to be bullish
    and when stock breaks lower band and stays below for some trading sessions
    bearish signal is generated.

    c. In strong bullish cycle when stock is moving along with upper band and then
    moves towards middle band it can be considered as bullish trend reversal. In the
    same way when stock is moving lower band and then moves towards middle
    bearish trend reversal can be detected.

    d. They gives very good idea of volatility of the stock. The wider the band the more
    volatility it has.

    e. A very narrowing band means indecision on price movement and a possible


    break out is imminent.
    Limitation
    a. They alone do not provide absolute buy and sell signal.

    b. In strong trending market, Bollinger bands looses its significance. They tend to give
    many wrong signals. Its best to avoid they in such situations.

    c. In actual scenario, Price break above Bollinger band is far more than 95% (as per
    normal distribution) and not all break gives signal of trend reversals.

    d. They often need support of another technical indicator to determine action.

    Color Convention of Bollinger Band

    1. Dashed grey lines which represents bollinger band.


    2. Black lines represent price.

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