Bollinger Band

Bollinger Bands® is composed of three lines. One of the more common calculations uses a 20-day simple moving average (SMA) for the middle band. The upper band is calculated by taking the middle band and adding twice the daily standard deviation to that amount. The lower band is calculated by taking the middle band minus two times the daily standard deviation.

The Bollinger Band® formula consists of the following: $BOLU=MA(TP,n)+m∗σ[TP,n]$ $BOLD=MA(TP,n)−m∗σ[TP,n]$ where: $BOLU=Upper\ Bollinger\ Band$ $BOLD=Lower\ Bollinger\ Band$ $MA=Moving\ average$ $TP (typical\ price)=(High+Low+Close)÷3$ $n=Number\ of\ days\ in\ smoothing\ period$ $m=Number\ of\ standard\ deviations$ $σ[TP,n]=Standard\ Deviation\ over\ last\ n\ periods\ of\ TP$

Overbought and Oversold Strategy A common approach when using Bollinger Bands® is to identify overbought or oversold market conditions. When the price of the asset breaks below the lower band of the Bollinger Bands®, prices have perhaps fallen too much and are due to bounce. On the other hand, when price breaks above the upper band, the market is perhaps overbought and due for a pullback.