Invented in the 80s by John Bollinger, the Bollinger Bands are a technical indicator enabling to rapidly follow the volatility and trend of an asset.
Middle Band = 20-day SMA
Upper Band = 20-day SMA + (20-dat SDF x 2)
Lower Band = 20-day SMA – (20-dat SDF x 2)
SMA is the simple moving average. SDF is the standard deviation of price.
This Indicator, like its name suggests, forms two bands around a line calculated thanks to a 20 day moving average. These bands tighten or slacken depending on the volatility.
The higher bound represents prices statistically higher. The lower bound represents prices statistically lower.
Continually reaching the higher bound is a high buying activity and inversely for the lower bound.
• Bullish trend: The price is higher than the SMA20 or the higher band / the price is above the SMA20.
• Bearish trend: Breaking the lower bound / the price is under the SMA20.