Bollinger Bands are a lagging volatility indicator. Bollinger Bands consist of three lines, or bands—the middle band, the lower band, and the upper band. The gap between the bands widens when the price volatility is high and reduces when the price volatility is low.
Bollinger Bands are an indicator of overbought or oversold conditions. When the price is near the upper band or the lower band, this indicator predicts that a reversal will happen soon. The middle band acts as a support or resistance level.
The upper band and lower band can also be interpreted as price targets. When the price bounces off of the upper band and crosses the middle band, the lower band becomes the price target, and vice versa.
The formulae for computing the Bollinger Bands are as follows.
Bollinger Bands define the typical price (TP) as the average of the high, low, and close of a candle. The TP is used for computing the middle band, lower band, and upper...
