 |
| Bollinger Band (BB) |
| Bollinger Band (BB) is a band plotted two standard deviations away from a simple moving average. |
As standard deviation is a measure of volatility, Bollinger bands adjust themselves to the market conditions. When the markets become more volatile, the bands move further away from the average, and during less volatile periods, the bands move closer to the average. The tightening of the bands is often used by technical traders as an early indication that the volatility is about to increase sharply.
The closer the prices move to the upper band, the closer the price reaching the upper limit of price fluctuation and may follow by a downward adjustment. When the prices move to the lower band, the price may rebound. In other words, the upper band represents the resistance level and the lower band represents the support level.
The BB chart displays Upper Band (Upper BB), Lower Band (Lower BB) and Middle Band (Middle BB). Middle Band is the line of 20 simple moving average and Upper Band and Lower Band are using 2 standard deviations as parameters.
Figure: A chart of Hang Seng Bank with BB
 |
|
Chart Guide
