Calculation method to detect trend changes on the financial market. The calculated bands wrap around the price trend of the underlying asset such as a share, index or option with an alternating distance. – Above and below a moving average – a line is drawn in each case, – whose distance to the average line in the basic setting – is twice the standard deviation of the observed period. The distance of the bands from each other – and from the moving average – thus depends on the current fluctuation range of the underlying. – Statistically, more than three quarters of all prices are within the Bollinger bands and at the single and double standard deviation, respectively. It can be observed that the prices move from one band to the other. In trends, prices usually do not reach the other band, but only fluctuate between the moving average line – from which they are calculated – and the upper band (entry band: in uptrends) or lower band (exit band: in downtrends). Thus, entry opportunities and price targets can be derived. A breakout of the price from the envelope created by the bands, on the other hand, suggests a continuation of the trend in the direction of the breakout. – To what extent the Bollinger bands may be seen as start or exit signals into an engagement is highly controversial. Nonetheless, in practice, this method has proven to be a fairly reliable means of illustrating volatility. – See stock market volatility, analysis, technical, baseline, stock market outlier, charts, Fibonacci sequence, advance-retrace number, money market volatility, bull market, bull market feeds the bull market, high flyer, histogram, mapping, price range, traded, price breakout, model uncertainty, random walk hypothesis, runup, dash chart, support line, resistance line.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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https://www.gerhardmerk.de/