Bollinger Bands (/ˈbɒlɪndʒər/) are a type of statistical chart characterizing the prices and volatility over time of a financial instrument or commodity, using a formulaic method propounded by John Bollinger in the 1980s. Financial traders employ these charts as a methodical tool to inform trading decisions, control automated trading systems, or as a component of technical analysis. Bollinger Bands display a graphical band (the envelope maximum and minimum of moving averages, similar to Keltner or Donchian channels) and volatility (expressed by the width of the envelope) in one two-dimensional chart.
Two input parameters chosen independently by the user govern how a given chart summarizes the known historical price data, allowing the user to vary the response of the chart to the magnitude and frequency of price changes, similar to parametric equations in signal processing or control systems. Bollinger Bands consist of an N-period moving average (MA), an upper band at K times an N-period standard deviation above the moving average (MA + Kσ), and a lower band at K times an N-period standard deviation below the moving average (MA − Kσ). The chart thus expresses arbitrary choices or assumptions of the user, and is not strictly about the price data alone.
Typical values for N and K are 20 days and 2, respectively. The default choice for the average is a simple moving average, but other types of averages can be employed as needed. Exponential moving averages are a common second choice.[note 1] Usually the same period is used for both the middle band and the calculation of standard deviation.[note 2]
Bollinger registered the words "Bollinger Bands" as a U.S. trademark in 2011.[2]
- ^ Bollinger On Bollinger Bands – The Seminar, DVD I ISBN 978-0-9726111-0-7
- ^ "Bollinger Bands – Trademark Details". Justia.com. 2011-12-20.
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