Bollinger Bands

The second indicator to be discussed is the Bollinger Bands. This technique was developed by John Bollinger. Bollinger Bands are constructed by placing two trading bands, typically two standard deviations away from a 20-day moving average of the price, to envelope the price. Generally, when prices touch the upper band, they are considered to be overbought and therefore would indicate a sell signal, where as when prices touch the lower band it would be considered as oversold and therefore a buy signal. Upper and lower bands can be used as potential support and resistance areas and therefore as potential price targets. It should be noted that certain cases, in bullish or bearish trends, prices have shown to stay extended at the upper or lower band of the Bollinger Band and persist to climb and extend further, a situation known as "walking up the band".

Next: Building Blocks of Technical Analysis: Indicators - MACD


    Table of Contents
  1. Introduction
  2. Technical Analysis Explained
  3. Building Blocks of Technical Analysis: Charts
  4. Building Blocks of Technical Analysis: Trendlines
  5. Building Blocks of Technical Analysis: Moving Averages
  6. Building Blocks of Technical Analysis: Indicators - RSI
  7. Building Blocks of Technical Analysis: Indicators - Bollinger Bands
  8. Building Blocks of Technical Analysis: Indicators - MACD
  9. Building Blocks of Technical Analysis: Price Patterns - Reversal Patterns
  10. Building Blocks of Technical Analysis: Price Patterns - Continuation Patterns
  11. Conclusion
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