Bollinger Bands Definition & Meaning | Technical Indicator | CSIMarket
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Glossary

Bollinger Bands

Technical Indicator

Bollinger Bands is a technical analysis tool that measures the volatility of a financial instrument*s price movement. It was developed by John Bollinger in the 1980s and has become a popular indicator among traders worldwide.

Bollinger Bands consist of three lines and are typically plotted on a price chart. The middle line is a simple moving average (SMA), which is typically set at 20 periods. The upper and lower lines are called the upper and lower bands, respectively. These bands are placed a certain number of standard deviations above and below the middle line.

The main use of Bollinger Bands is to identify the price range of a financial instrument based on its volatility. When the volatility is low, the bands will contract, whereas during high volatility, they will expand. Traders use this information to identify potential trend reversals or breakouts.

The formula for calculating Bollinger Bands is as follows:

Middle Band = n-period Simple Moving Average

Upper Band = Middle Band + (k x n-period Standard Deviation)

Lower Band = Middle Band - (k x n-period Standard Deviation)

Where:

n = number of periods for the moving average

k = number of standard deviations from the moving average

Standard Deviation = Square root of [(Sum of (Closing value - Moving Average)^2) / n].




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