Bollinger Bands (Bollinger Bands, BB) Indicator [Envelope]

Bollinger Bands (BB) - technical indicator, which is also used on market which is used to determine the price channel within which the price is expected to move, the direction of the price chart, as well as the supports and resistances of the asset.

In many ways. Bollinger Bands indicator akin to by the Envelopes indicator. However, if the Converts are based on a fixed distance from the Moving Average, then Bollinger Bands are based on distances equal to a certain number of standard deviations, that is, from volatility market. As a result, the width of the Bollinger Bands is determined based on the state of the market, that is, it is dynamic. If the price movement is uncertain, the bands widen, allowing the movement to go in different directions, if the market is stable, they narrow, keeping a strict direction.

Bollinger Bands indicator can be applied both to the price chart and to another indicator, creating your own market strategy. It is a standard indicator MetaTrader 4 trading terminal.

Features of the Bollinger Bands indicator

Traders who trade with the BB indicator have a number of features:

1. Sharp price impulses most often appear after the narrowing of the band, when market volatility drops. Economically, this shows that traders have prepared to move in one direction.
2. if the price movement is so strong that it goes beyond the Bollinger Band, you can be sure of continuing trend.
3. The price movements that start at one of the boundaries inside the indicator, as a rule, reach the opposite boundary.

Formula for calculating the Bollinger Band indicator

Bollinger Bands indicator is formed by three lines.

1. The middle line is the usual Moving Average.

ML = SUM [CLOSE, N]/N

2. The Top Line (TL) is the average line shifted upward by a certain number of standard deviations (D).

TL = ML + (D*StdDev)

The Botton Line (BL) is the middle line offset down by the same number of standard deviations as the top line.

BL = ML - (D*StdDev)

Where:

- SUM (..., N) - the sum of price values for N periods;
- CLOSE - closing price of the bar;
- N - number of periods to calculate;
- SMA - simple moving average;
- SQRT is the square root;
- StdDev - standard deviation:

StdDev = SQRT(SUM[(CLOSE - SMA(CLOSE, N))^2, N]/N)