Bollinger Bands

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Definition

Bollinger Bands is technical analysis indicator that is used to define a bounded range for the price of a security. It is calculated as a certain amount of standard deviations away from a moving average. The standard metric on YCharts is 2 standard deviations away from the 20 day simple moving average. Bollinger bands are often used as support and resistance, as well as an indicator of volatility.

There is one middle band with two outer bands. Bollinger bands should not be used alone but combined with other indicators. If the price is high (low), investors should not necessarily think that this is time to sell (buy)

Formula

Middle Band = Simple Moving Average of a given period

Upper Band = Middle Band SMA + (Middle Band given period standard deviation of price x 2)

Lower Band = Middle Band SMA - (Middle Band given period standard deviation of price x 2)

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