These indicators were first discovered by a technical analysis expert named John Bollinger in the 1980s. This technique is also a Moving Averages developed into two lines, the lines of the so-called 'Upper bands' and the bottom line of so-called 'Lower bands'. The second line wrap on this indicator of price movements of 95% stake in it as in MA Envelopes. Stock price movements that are beyond the top line indicate the condition of being overbought or bearish signal. While the stock price movement beyond the bottom line indicates the condition being oversold or bullish signal.
Although very similar to the MA Envelopes, Bollinger Bands but have a different way of calculation because it involves the calculation of the price volatility of a stock. This makes the appearance of lines Bollinger Bands can be widened and narrowed MA Envelopes different from constant (see figure).
Setting standards recommended by John Bollinger is 20, -2. This means using the MA (20) with 2 standard deviations (2 SD). The upper line (upper band) is the result of MA (20) added 2 SD. The bottom line (lower band) is the result of MA (20) minus 2 SD. Standard deviation is a term used to indicate the volatility of a stock. For example, by measuring the difference in value of closing price to the average value.
The higher the value of standard deviation indicates higher volatility. This high volatility in the line of the Bollinger Bands will be reflected pad that opens the second line (wide or far apart). The closer the closing prices with the average price will lower the standard deviation, indicating the volatility is low. This will be reflected on the second line of the Bollinger Bands are docked (narrowing or more contiguous.)
Bollinger Bands Formula:
Although very similar to the MA Envelopes, Bollinger Bands but have a different way of calculation because it involves the calculation of the price volatility of a stock. This makes the appearance of lines Bollinger Bands can be widened and narrowed MA Envelopes different from constant (see figure).
Setting standards recommended by John Bollinger is 20, -2. This means using the MA (20) with 2 standard deviations (2 SD). The upper line (upper band) is the result of MA (20) added 2 SD. The bottom line (lower band) is the result of MA (20) minus 2 SD. Standard deviation is a term used to indicate the volatility of a stock. For example, by measuring the difference in value of closing price to the average value.
The higher the value of standard deviation indicates higher volatility. This high volatility in the line of the Bollinger Bands will be reflected pad that opens the second line (wide or far apart). The closer the closing prices with the average price will lower the standard deviation, indicating the volatility is low. This will be reflected on the second line of the Bollinger Bands are docked (narrowing or more contiguous.)
Bollinger Bands Formula:
Middle Bollinger Bands is based on n-day MA
Bands Upper Band = Middle + (2 * n) period, the standard deviation
Bands Lower Band = Middle - (2 * n) period standard deviation
Bands Upper Band = Middle + (2 * n) period, the standard deviation
Bands Lower Band = Middle - (2 * n) period standard deviation
As already explained earlier that although sometimes a stock is in overbought or oversold condition may remain in the sentiment for some time. In a strong uptrend price will continue to fluctuate around the upper bands. In a strong downtrend prices will continue to stick to the line of the lower bands (see picture). Because this is the signal obtained from a better indicator Bollinger Bands confirmed again with other techniques.
0 comments:
Post a Comment