How Bollinger Bands work and their best parameters

Just a reminder...

A Bollinger Band resembles a moving cylinder with three lines.

A top, middle and bottom line.

These three lines are plotted on any chart and you’ll see the price of the markets moving in-between these levels.

When the price crossed above the middle line, the trend is up.

When price moves and stays below the middle line, the trend is down.

There are three parts to the Bollinger Bands. Upper, Middle and Lower Bollinger Band.

Here are my parameters…

The length (20), shows you the Moving Average of the Middle Bollinger Band. Which in this case is 20 MA and is shown in the chart as the orange line…

The Source tells us we are using closing prices in the chart…

That means, when the JSE All Share Index closes for the day – that is the closing price that will be used for the BB.

StdDev is 2… Bollinger Bands are envelopes that base a Standard Deviation above and below a simple moving average of the price.
Because the distance of the bands is based on standard deviation, that’s why we are able to see a symmetrical envelope around the price…

Most Bollinger Bands parameters are set to 20MA and 2 Standard Deviations on most charting platforms.

But now you know what to set it to, to maximise your usage...

If you have any questions about indicators feel free to ask. I've been in the markets since 2003 and enjoy sharing information...

Trade well, live free.

Timon
MATI Trader