Bollinger Bands

The Bollinger Bands are one of the most common indicators in technical analysis, based on the volatility of the asset under analysis. Volatility can be seen as the standard deviation, statistically defined as the standard deviation or square root of the variance. To calculate Bollinger Bands we first use a X-day moving average to which the value of the standard deviation multiplied by a given Y factor is added or subtracted. The upper band is then obtained by adding the standard deviation to the moving average Y times. The central band is given by the moving average. The lower band is calculated by subtracting the standard deviation from the moving average Y. Greater bandwidth corresponds to high volatility. A lower amplitude, on the other hand, corresponds to low volatility. Converging bands represent decreasing volatility. Divergent bands represent increasing volatility.

Bollinger himself recommends the following X and Y parameters

Standard X = 20 Y = 2

Short Medium X = 10 Y = 1.9

Medium Long X = 50 Y = 2.1

Operations: Approximately, from an operational point of view, Bollinger Bands give signals of purchase and sale when the following conditions are met:

SELL: when the price chart exits the upper band and then re-enters it. There was therefore a rapid increase in the price and a subsequent slowdown or adjustment;

BUY: when the price chart exits the lower band and then re-enters it. That is, the price has dropped very quickly to the point of stopping and probably reversing the trend.