Info 1: Bollinger band Definition
Info 2: how Bollinger Bands work
Info 3: Bollinger band vs moving average
Info 4: example of Bollinger band
Opening information:
Bollinger bands break into two words Bollinger and bands. Bollinger doesn’t have any specific meaning indeed it’s the name of a person, Bands means belt. Bollinger band means belts of cure strip which is created by Mr.bollinger
So now let’s have a look at what is a Bollinger band, how the Bollinger bands work in the public market, and what is the difference between the Bollinger band and moving average, finally one brief example about the Bollinger band.
info 1: Bollinger bands definition
Simon, a 32-year-old male entrepreneur, ran a private company called Donillo. Donillo is a private electronics manufacturing company run by Simon for the past 12 years.
Simon wants Donillo to expand its reach around the world and move the company to greater heights
It is a long-term dream.
However, Simon does not have enough cash to expand the company. For this reason, Simon introduced Donillo as a public company. Simon has been the CEO of Donillo since its transformation into a public company.
Shares of Donillo Public Company were issued on the stock exchange at 50 dollars. Shares of Donillo were initially well received by the general public.
During the trading session, the Investor trades with three lines of trackers as tech tools. The one line is the average moving price of the shares was observed for 20 consecutive days and fixed at a constant value of $ 50.
The second line curve at Donillo’s shares was added to the investor’s portfolio it recently peaked at $ 75.
The third line eventually Donillo’s shares fell below average value to $ 25. Here each line demonstrates and follows the different kinds of values of three different curves, here these three curves are the Bollinger band.
Still, this might be confusing for most investing people about the Bollinger band. So let’s dive into how the Bollinger bands work in the public market.
Info 2: how Bollinger Bands works
Bollinger bands don’t represent any specific fixed object or thing, instead, they are a movement of lines that track the record of the public securities price chart with different functions.
This Bollinger band would have three lines, upper line, middle line, and lower line. Were each of these lines occupied the three different functions with purpose?
However, the upper line demonstrates the function of calculating the variation of a higher amount from the standard value of the Securities move, over the past certain amount of days which this upper line is known to be a standard deviation.
The middle line illustrates the function of calculating the standard average value of the same securities move, over the past specific amount of days, which this middle line is called as moving average.
Next, the lower line elaborates the function of summing the difference of lower price variation from the normal value of the same securities price for a set amount of days, where this line also would be considered as a standard deviation.
Moreover, these three lines created three different values and traded along with market price moves Using these three lines speculators and Investors would decide on the trading position or entry point.
When the market security price gross the upper line, it introduces the signal that’s market has the possibility of moving high in future periods, or if the same security instruments cross the lower line it shows that future market prices have a high chance to fall low and lower.
On the other hand, if the market didn’t cross the upper or lower line indeed security price would be trade standard with the moving average of the middle line, it’s reveals the signal that the market price had a probability of moving side away and normally with high up and low volatility.
This is the whole function of the Bollinger bands but most people confuse the moving average and Bollinger bands, so let’s jump into the key difference in it anyway.
info 3: Bollinger band vs moving average
The difference between the Bollinger band and the moving average is, that the Bollinger band is a technical tool used on the trading chart using a simple moving average and the two standard deviations.
Next is the moving average also a technical tool for observing the average price range for m over some time. Moving average became the involvement tool of Bollinger band. To make you more clear about the Bollinger band, let’s look into one brief example below.
Info 4: example of Bollinger band
Your friend had bought shares in commodities in the public market. A friend had used two tech tools to track the ups and downs of day-to-day conditions of shares purchased in a public company.
One tool shows the average move over the 20 days and the other tools illustrate the three bands including the moving average and standard deviation.
Here the tools that are used with three bands are named Bollinger bands. The tools on average move tracking is the simple moving average.