Stock options band
History of Bollinger Bands. Bollinger Bands are a technical analysis trading tool created by John Bollinger, a long-time technician of the markets, in the early s. They arose from the need for adaptive trading bands and the observation that volatility was dynamic, not static as was widely believed at the time, and since they can be used to measure the highness or lowness of the price relative to previous trades they became widely accepted. John Bollinger developed the technique of using a moving average with two trading bands above and below it. Unlike a percentage calculation from a normal moving average, Bollinger bands simply add and subtract a standard deviation calculation. Standard deviation is a mathematical formula that measures volatility, showing how the stock price can vary from its true value. By measuring price volatility, Bollinger Bands adjust themselves to market conditions. This is what makes them so handy for traders: John Bollinger, CFA, Band. John Bollinger band the president and founder of Bollinger Capital Management. He personally governs all investment decisions for Bollinger Capital Management clients. John Bollinger is a Chartered Financial Analyst CFA and a Chartered Market Technician CMT. He is known to the public for his many years of market analysis and commentary on television -- first on Financial News Network, where he was the Chief Market Analyst -- and subsequently on CNBC. John Bollinger is also well known to professional investors. An avid researcher, he has developed a number of widely used investment tools and analytical techniques. Stock technical analysis trading tools have been integrated into most of the analytical software and charting platforms currently in use. His stock, "Bollinger on Bollinger Bands" was published by Options Hill in and has been translated into seven languages. John Bollinger is also the founder of several web sites for investors. He is an active member of the financial community and a frequent lecturer at national and international investment stock. His articles have appeared in Technical Analysis of Stocks and Commodities, Active Trader band the Market Technicians Association Newsletter. He is a former board member of the Market Technicians Association and the International Federation of Technical Analysts. Bollinger Capital Management Inc. Stock Capital Management also develops and provides proprietary research for institutions and individuals. A technical analysis technique in which lines are plotted two standard deviations above and below a moving average, and at the moving average itself. Because standard deviation measures volatility, these bands will be wider during increased volatility and narrower during decreased volatility. Some technical analysts consider a market which approaches the upper band to be overbought, and a market which approaches the lower band to be oversold. Use As an Indicator Bollinger Bands are a very powerful technical indicator. Some traders will swear that solely trading these Bands is the key to their winning systems. The Bands are drawn within and surrounding the price structure of a stock. It provides relative boundaries of highs and lows. The Bands consist of a set of three curves drawn in relation to options prices. The middle band is a measure of the intermediate-term trend, usually a simple moving average that serves as the base for the upper band and lower band. Most stock charting applications default the middle band to a 20 period moving average. The interval between the upper and lower bands and options middle band is determined by band, typically the standard deviation of the same data that were used for the average. The default parameters, 20 periods and two standard deviations, may be adjusted to suit your purposes. Typical values for N and K are 20 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. Usually the same period is used for both the middle band and the calculation of standard deviation. A Calculation of Bollinger Bands. The top line, TL, is the same as the middle line a certain number of standard deviations D higher than the ML. The bottom line BL is the middle line shifted down by the same number of standard deviations. It is recommended to use period Simple Moving Average as the middle line, and plot top band bottom lines two standard deviations away from it. Besides, moving averages of less than 10 periods are of little effect. Bollinger Bands are a good tool to give traders a feel for what the volatility is in the market and how high or low prices are relative to the recent past. The basic premise of Bollinger Bands is that price should normally fall within two standard deviations represented by the upper and lower band of the mean which is the center line moving average. As this is the case, trend reversals often occur near the upper and lower bands. As the center line is a moving average which represents the trend in the market, it will also frequently act as support or resistance. Use on Stock Patterns. The bands will expand and contract as the price action of an issue becomes volatile expansion or becomes bound into a tight trading pattern contraction. When the average used in the calculation of the Bands is changed from a simple moving average to an exponential or weighted moving average, it must be changed options both the calculation of the middle band and the calculation of standard deviation. Indicators Derived from Bollinger Bands. Writing upperBB for the upper band, lowerBB for the lower band, options last for the last price value:. BandWidth tells options how wide the Bollinger Bands are on a normalized basis. Writing the same symbols as before, and middleBB for the moving average, or middle Bollinger Band:. Uses for BandWidth include identification of opportunities arising from relative extremes in volatility and trend identification. Use Outside of Finance. In a paper published in by the Society of Photo-Optical Engineers, "Novel method for patterned fabric inspection using Bollinger Bands", Henry Y. Ngan and Grantham K. Pang present a method of using Bollinger Bands to detect defects in patterned fabrics. The use of Bollinger Bands varies widely among traders. Some traders buy when price touches the lower Bollinger band and exit when price touches the moving average in the center of the bands. Other traders buy when price breaks above the upper band or sell when price falls below the lower band. Moreover, the use of Bollinger Bands is not confined to stock traders; options traders, most notably implied volatility traders, often sell options when the Bands are historically far apart or buy options when the Bands are historically close together, in both instances, expecting volatility to stock back towards the band historical volatility level for the stock. When the bands lie close together a period of low volatility in stock price is indicated. When they are far apart a period of high volatility in price is indicated. When the bands have only a slight slope and lie approximately parallel for an extended time the price of a stock will be found to oscillate up and down between the bands as though in a channel. Traders are often inclined to use Bollinger Bands with other indicators to see if there is confirmation. In particular, the use stock an oscillator like Bollinger Bands will often be band with a non-oscillator indicator like chart patterns or a trend line; if these indicators confirm the recommendation of the Bands, the trader will have greater evidence that what they forecast is correct. Do what's right, the right way, at the right time. Take control of your future prosperity the Easy way. Become a member of Stock Options Made Easy today! Enjoy Relaxed or Fast-Paced Trading? Choose your Membership Style Whether you prefer to take a laid-back approach to your trading. Legal Notices and Disclaimers. Subscribe to our Stock newsletter for all the latest options news! Enter Your Email Address Enter Your First Name.
Joel Best is the recipient of the prestigious Public Understanding of Sociology Award from the American Sociological Association.
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