Technical Analysis Plain and Simple: Charting the Markets in Your Language, Second Edition

Bollinger Bands

Bollinger bands, also known as standard deviation envelopes, were developed by John Bollinger. Bollinger theorized that the width of an envelope should be determined by the market rather than by the assumptions of the analyst, as done with other types of trading bands and envelopes. His theory states that a trading envelope’s distance from the mean (moving average) is a function of the market’s volatility. This makes sense because a volatile market does have wider swings from its average, even though a distinct trend may be in effect. The bands should expand to account for this, rather than be subject to giving false reversal signals. Conversely, when a market is flat, the bands should tighten so that a breakout can be signaled ...