| Bollinger
Band |
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These
are bands plotted two standard deviations away from a simple moving
average. Because standard deviation is a measure of volatility, Bollinger
Bands adjust themselves to the market conditions. When the markets
become more volatile they widen and contract during less volatile
periods. By using standard deviations rather than a fixed percentage,
the bands adjust for volatility. During volatile periods, the bands
move further away from the average, when the market is flat, the bands
move closer to the average.
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This
is among one of the most popular technical analysis techniques. The
closer the prices move to the upper band, the more overbought the
market, and the closer the prices move to the lower band, the more
oversold the market. |
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Dictionary
