Bollinger Bands Flashcards
Where are the upper and lower bands plotted on a stock chart
2 standard deviations away from the simple moving average
What does it mean in terms of sales of the stock if the price gets close to the upper or lower bands
Close to upper = overbought
close to lower = oversold
What is standard deviation a measure of
Volatility
Do the bands contract or widen as volatility increases
As volatility increases, the bands get wider as the SD will increase as well.
What is a squeeze?
The squeeze is the central concept of Bollinger Bands®. When the bands come close together, constricting the moving average, it is called a squeeze.
What does a squeeze signal?
A squeeze signals a period of low volatility and is considered by traders to be a potential sign of future increased volatility and possible trading opportunities.
What do you need to be aware of when you see a squeeze in terms of the direction that the price will move in and when it’ll happen
The bands give no indication when the change may take place or which direction price could move.
What is a breakout and what does it signal
major event where the price exceeds the bands.
BUT IT ITS NOT A TRADING SIGNAL AS THEY SHOW NO TO THE DIRECTION OR EXTENT OF FURTHER PRICE MOVEMENT
What does a bollinger band consist of
Centerline = Exponential moving average
2 price channels above and below
