Bollinger Bands for Excel
Bollinger Bands are a technical indicator that are placed on charts to show when the price is at an extreme relative to recent price action. They can be used for taking profits or helping to identify changes in the market direction. Bollinger Bands expand and contract depending on price action.
The width of the bands is a useful guide to volatility. The first stage in calculating Bollinger Bands is to take a moving average. Then you calculate the standard deviation of the closing price over the same number of periods. The standard deviation is then multiplied by a factor (typically 2). The upper band is calculated by adding the standard deviation multiplied by the factor to the moving average.
The lower band is calculated by subtracting the standard deviation multiplied by the factor from the moving average. I don’t normally have Bollinger Bands on my charts because I find they clutter the charts and distract from the price action. However, I often add them to charts temporarily to see whether the current price is inside or outside the bands. I also like using them when I am developing automatic trading strategies because they are self-scaling. This means that they can be applied to any market and timeframe without needing to adjust the parameters.
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