Indicator - Bollinger Bands
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Calculation Bollinger Bands
Bollinger bands are a volatility indicator, based on a moving average (the middle line) and a standard deviation to form the bands.
This standard deviation makes the bands widen or narrow, according to market volatility.
The first parameter is the number of days for the moving average.
The second parameter is the standard deviation.
Interpretation Bollinger Bands
Bollinger bands adjust themselves based on the market volatility.
95% of the prices must be inside the bands if one can presume that prices follow a normal Gaussian distribution (bell curve).
The bands thus constitute strong zones of support and resistance when the market is without clear trend.
When the distance between the upper and lower band narrows after having increased, it is an indication that the trend has lost its force.
