Bollinger Bands trading indicator

Bollinger Bands – technical analysis tool used to generate oversold or overbought signals.

Formula:

BOLU=MA(TP,n)+m∗σ[TP,n]
BOLD=MA(TP,n)−m∗σ[TP,n]
where:
BOLU=Upper Bollinger Band
BOLD=Lower Bollinger Band
MA=Moving average
TP (typical price)=(High+Low+Close)÷3
n=Number of days in smoothing period (typically 20)
m=Number of standard deviations (typically 2)
σ[TP,n]=Standard Deviation over last n periods of TP

Key Takeaways:

1. Bollinger Bands is a technical analysis tool to generate oversold or overbought signals and was developed by John Bollinger.
2. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average and can be modified.
3. When the price continually touches the upper Bollinger Band, it can indicate an overbought signal, and when the price continually touches the lower band it can indicate an oversold signal.

Counterarguments:

1. Bollinger Bands is not a standalone trading system and should be used with other indicators.
2. The use of 20-day SMA and 2 standard deviations is arbitrary and may not work for everyone in every situation.