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| Bollinger Bands |
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| Written by Kimball Hall | |
| Monday, 06 October 2008 | |
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Bollinger bands are used to measure the dynamic volatility of markets. Bollinger Bands tells us whether the market is high or whether the market is low. According the creator himself, "By definition prices are high at the upper band and low at the lower band." There are three important part to the Bollinger Band and two separate tools derived from their creation. Parts of the Bollinger Band: Upper Bollinger Band , Lower Bollinger Band , Middle Bollinger Band Two important tools: BandWidth , %b Two important things to remember when using Bollinger Bands 1. Price tends to return to the middle of the bands. 2. Closes outside the Bollinger Bands can be continuation signals. Price can and often does follow the Bollinger Bands up and down. Keeping the above two items in mind will create the basis of trading using Bollinger Bands. Look at the following chart, A Bollinger Band has been applied with the standard 20, 2 settings. Notice how price tends to move move to the center with the red arrows and along the bands with the blue arrows.
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