The Bollinger Bands indicator was developed by American technical analyst John Bollinger.
Calculation of Bollinger Bands
- Mid Band: N-period moving average (commonly set to a 20-day moving average).
- Upper and Lower Bands: Calculated as the mid-band ± (standard deviation × 2).
Though Bollinger Bands consist of five lines—Mid Band, +1 and -1 Sigma, and +2 and -2 Sigma—traders often only use the Mid Band, Upper Band, and Lower Band for analysis.
Understanding Bollinger Bands
Bollinger Bands help identify trends through the Mid Band's direction, evaluate price levels with candle positions, and assess volatility with band width. A key characteristic of Bollinger Bands is that prices remain within the bands 95.5% of the time, with movements outside the bands being rare. When prices touch the upper band, it might indicate an overbought condition, while touching the lower band might suggest oversold levels. However, John Bollinger himself has stated that using these points as straightforward buy or sell signals is not an effective strategy.
Expansion and Contraction
Standard deviation in Bollinger Bands reflects price volatility over the selected period. Wider bands indicate increased volatility, while narrower bands signify reduced volatility. After periods of expansion, the bands contract, suggesting the end of a trend, and after contraction, they expand, possibly signaling a new trend beginning.
Bollinger Band Walk and Head Fake
When price candles move outside the upper or lower bands in a strong trend, this is known as a “Bollinger Band Walk.” This movement can indicate a continuation of the trend—breaking the upper band might suggest a buying opportunity, while breaking the lower band could signal a potential sell point. However, traders should be cautious of a “head fake,” where a candle moves outside the bands without subsequent expansion, as this can signal a false trend.
댓글