What is the meaning of Bollinger Bands?
Bollinger Bands is a technical analysis technique developed by John Bollinger. It is comprised of three lines which mark a volatility range within which a security moves up or down. Volatility is depicted by the standard deviation of a particular security. Latter is represented either by upper or lower line. Bollinger Bands thus stand for various highs and lows which have been touched by a security over a particular duration along with its relative strength. It is the price points which are formed near the edges of the envelope which ultimately give the pattern. The width of the band varies with volatility.
The bands also show oversold and overbought situations w.r.t a specific time period moving average.
The variables required for calculation of Bollinger Bands are as follows:
- Time Period N
- Standard Deviation s
- Three Bollinger lines