Background
Bollinger Bands was developed by John Bollinger in 1980. This band are used by technical analysts for studying the volatility and price behaviour of securities ( Cryptocurrency, Foreign Currency, Share of Company etc. )
In Bollinger Bands chart, there are Three Band's.
(1) Middle Band :- Middle Band exhibits the 20 days moving average of the prices.
(2) Upper Band :- Upper Band exhibits the 20 days moving average of the prices + 2SD.
(3) Lower Band :- Lower Band exhibits the 20 days moving average of the prices -2SD.
Standard Deviation (SD) is a measurement of volatility.
At a given time,
Wider band represents -higher Volatility.
Narrower band represents - lower volatility.
Interpretation of the Bollinger Bands chart.
In uptrends, the price usually moves between the exhibits the 20 days moving average of the prices in the upper band.
In downtrends, the price usually moves between the exhibits the 20 days moving average of the prices in the lower band.
Penitration of the upper Bollinger band in an uptrends usually suggests continuation of the uptrend. However, if the price quickly moves back into the band, a trend reversal or at least a deep correction is likely.
Penetration of the lower Bollinger band in a downtrend usually suggests continuation of the downtrend. However, if the price quickly moves back into the band, a trend reversal or at least a strong temperary rally is likely.
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