This an excellent interview with John Bollinger who created the Bollinger Bands, which are a nifty little tool used by the technical traders to help make sense of the markets. They are made up of three lines or bands you could call them that move by expanding and contracting around the price bars on the chart. I was fortunate to be able see him live in Toronto at our TA workshop years ago with the Canadian Society of Technical Analysts.
The middle band is a moving average that tells you the average price over a certain time. The other two bands move above and below the middle band at a set number of standard deviations away. These bands help show how much the price is wandering from the average.
Now, these Bollinger Bands are clever little things, and they’re quite useful for finding trading opportunities. When the price meanders up to the upper band, it might mean the market is getting a bit too excited and may soon settle down. And when the price dips down to the lower band, it might mean the market is getting a bit too down in the dumps and may soon bounce back up. This can give technical traders a clue about when to buy or sell, depending on what they think the market will do.
But Bollinger Bands aren’t just for finding trading opportunities. They’re also good at showing how volatile the market is feeling. When the bands are huddled up close together it suggests the market is feeling pretty calm. But when the bands are far it suggests the market is feeling pretty wild.
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