What is boilinger band?

What is boilinger band?

Hi Friends!Hope you are fine and doing well. Please encourage me and like my post if you observe it beneficial. Boiling Band: A Bollinger Band is a tool used in technical analysis. It is created by drawing lines based on a set of trained rules. These lines show the fluctuation of a security's price above and below a simple moving average (SMA). The Bollinger Band was developed and copyrighted by a famous trader named John Bollinger. It was designed to help investors identify situations where stocks are being bought or sold more than usual. Many traders believe that when prices approach the upper band, the market will be overbought, and when prices approach the lower band, the market will be oversold. John Bollinger has a set of 22 rules that traders can follow to use the band as part of their trading system. In the example chart provided, the Bollinger Bands track the daily movement of a stock's price in relation to its 20-day SMA. The width of the bands is a measure of volatility. When the market experiences high volatility, the bands widen, and during periods of low volatility, the bands contract. Traders can use the band to identify periods of consolidation or trend changes. How its Important: Bollinger Bands are a technical analysis tool developed by John Bollinger to generate signals for stocks that are being overbought or oversold. They consist of three lines: a simple moving average (middle band) and upper and lower bands. The upper and lower bands are usually set at +/− 20 days of the simple moving average, but they can be adjusted. Calculation:The first step in calculating Bollinger Bands is to calculate the simple moving average of the security, typically using a 20-day SMA. The 20-day moving average will calculate the average of the closing prices for the first 20 days. The next data point will reduce the initial value and include the price for the 21st day, and so on. This will give us the average deviation of the security's price. The average deviation is a measure of volatility and is widely used in statistics, finance, accounting, and economics. For a given dataset, the average deviation measures how much the prices deviate from the average value. The average deviation can be squared and multiplied by two, and then added or subtracted from both SMAs at each point. This creates the upper and lower bands.