Band basics

Posted by Scriptaty | 12:41 AM

By default, the upper and lower Bollinger Bands are placed two standard deviations above and below a 20 period simple moving average (SMA) of closing prices:

Upper band = 20-period SMA + 2 standard deviations

Middle line = 20-period SMA of closing prices

Lower band = 20-period SMA – 2 standard deviations


The upper and lower bands encompass the price action because the calculation of the bands uses a statistical measurement called standard deviation, which measures the how far the closing prices stray from the SMA of closing prices. Statistically, 95 percent of values will fall within two standard deviations of the average value, which means 95 percent of price action should occur within the upper and lower Bollinger Bands.

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