The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition prices are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions.
A Bollinger Band consists of two lines, one line displayed above and the other below the user-specified moving average.
The distance between each line and the moving average line represents the number of Square Root Deviations of each price away from the moving average, multiplied by a user-specified constant.
The following steps are used to calculate a Bollinger Band:
•Calculate a Moving Average based on the type, period, and price parameters.
•Calculate the Square Root Deviation.
•Multiply the calculated Square Root Deviation by the number specified via the Std Dev parameter in the Bollinger Band setup window.
•Add the calculated value to the Moving Average to produce the upper Bollinger Band line, and subtract the calculated value from the moving average to produce the lower Bollinger Band line.
For additional information, see http://www.bollingerbands.com/
Bollinger Band Parameters
|
Description | |
|
Display |
Opens sub-window to set parameters •Color = Line color. •Weight = Line thickness. •Display = Line style: line or histogram. •ShareScale = Determines whether sharing of the vertical scales between studies is accepted. Auto = System determine whether sharing is feasible. On = Scale is shared regardless of the functions and studies displayed. Off = Scale is not shared. ShareScale must be On if study is overlaid on a study with multiple outputs. |
|
MarkIt |
Opens Specify Conditions window. |
|
Type |
Moving average calculation. Values: •Simple •Smoothed •Exponential •Weighted •Centered •Median •Trix •Exponential Hull |
|
Period |
Number of bars in the lookback range. |
|
Price |
Price used to calculate study values. |
|
Std Dev |
Multiplier used to calculate upper and lower bands. |
|
Divisor |
Values: •N = standard deviation •N-1 = population standard deviation (estimate of population based on sample) |