Introduction to Bollinger Bands

The name Bollinger Bands has its origin in the name of the person who has created it. John Bollinger has created this technical trading tool in early 1980s. The Bollinger Bands are basically lines of a chart which shows the movement of Prices for a particular stock.


The Bollinger Bands consist of three lines first is the central line the second one is High line (the line above the central line on the chart) & third the Low line (the line below the central line on the chart).




The Central line is plotted on the basis of simple moving averages of the price data available. This central line provides the base for calculating the other two lines namely high & low.


The high line & Low line are determined by the interval between them & the central line which in turn is determined by the Volatility which is the standard deviation of the price data available on the basis of which the central line is plotted.


The main reason for analyzing the Bollinger Bands is to understand the trading pattern witnessed by the particular stock.


The analysis of the Bollinger Bands would help the trader to determine the High & Low values of the stock prices & it would assist to find out the direction or trend of the trading pattern for any particular stock.


The use of moving averages in the Bollinger Bands successfully removes the effect of price actions implied in the trading activity in the market & identify the long term trend.