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Bollinger Bands

A moving average with bands drawn two standard deviations above and below it.

Technical AnalysisIntermediate

Definition

The bands widen when volatility rises and narrow when it falls. A tight band, called a squeeze, shows that volatility is unusually low. Volatility tends to come in cycles, so a squeeze is often followed by a larger move, but the band gives no direction.

Formula

Bands = 20-period SMA +/- 2 standard deviations

Watch out for

Touching a band is not a signal by itself. In strong trends price can ride along a band for a long time.

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