Named for its developer John Bollinger, this is a statistically based system for tracking trends. Specifically, it tracks moving averages and the degree to which price deviates from those averages.3
The Bollinger Bands method has three moving averages. The middle band is a simple moving average of price. An upper band is two standard deviations higher than the price average, and a lower band is two standard deviations below the price average. All three bands are calculated on the same period, usually 20 days.
Because the popular bell curve is applicable for normal distribution, the use of standard deviation in a series of bands is applicable for stock prices, which do not exhibit normal distribution, but contain variables and ...