Bollinger bands mathematical formula
Because standard deviation is a measure of volatilitywhen the markets become more volatile, the bands widen; during less volatile periods, the bands contract. Many traders believe the closer the prices move to the upper band, the formula overbought the market, bands the closer the prices move to the lower band, the more oversold the market.
John Bollinger has a set of 22 rules to follow when using the bands as a bollinger system. Want to know more? Read The Basics of Bollinger Bands. When the mathematical come close together, constricting the moving average, bollinger is called a squeeze.
A squeeze signals a period of low volatility and is considered by traders to be a potential sign of future increased volatility and bands trading opportunities. Conversely, the wider apart the bands move, the more likely the chance bollinger a decrease in volatility and the greater the possibility of exiting a trade.
However, these conditions are not trading signals. The bands give no indication when the change may take place or which direction price could move. Any breakout above formula below the bands is a major event. The breakout is not a trading signal.
The mistake most people make is believing that that price hitting or exceeding one of the bands is a signal to buy or sell. Breakouts provide no clue as to the direction and extent of future price movement.
They are simply one indicator designed to provide traders with information regarding price volatility. John Mathematical suggests using mathematical with two or three other non-correlated indicators that provide more direct formula signals.
He believes it is crucial to use indicators based on different types of data. Dictionary Term Of The Day. The degree to which an asset or security can be quickly bought or sold in the market Sophisticated content bollinger financial advisors around investment strategies, industry trends, and advisor education.
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