Bollinger Bands

Bollinger Bands is a technical analysis tool invented by John Bollinger in the 1980s, and a term trademarked by him in 2011. Having evolved from the concept of trading bands, Bollinger Bands and the related indicators %b and bandwidth can be used to measure the “highness” or “lowness” of the price relative to previous trades. Bollinger Bands are a volatility indicator similar to the Keltner channel.

Bollinger Bands consist of:

  • an N-period moving average (MA)
  • an upper band at K times an N-period standard deviation above the moving average (MA + )
  • a lower band at K times an N-period standard deviation below the moving average (MA − )

Typical values for N and K are 20 and 2, respectively. The default choice for the average is a simple moving average, but other types of averages can be employed as needed. Exponential moving averages are a common second choice. Usually the same period is used for both the middle band and the calculation of standard deviation.

http://en.wikipedia.org/wiki/Bollinger_Bands