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What are Bollinger Bands & How Do You Use Them?

Bollinger Bands are envelopes that are contained between a standard deviation above and below a stock’s SMA. When a trend is strong, it will hug the edge of that direction’s standard deviation. This means if a stock is trending strongly upwards, it will hug the top standard deviation. Even more so, if the stock price moves outside the Bollinger Bands, you can expect a very strong trend in that direction. However, if the price moves directly back into the bands then it negates this trend. Using the width of the bands is very important as well.


How to Read the Bollinger Bands


    As you can see on the left side, the bands are widening and the uptrending begins to end. In the middle where the bands tighten, the stock price soon after shoots directly upwards and begins a new trend. This trend becomes a strong trend when it starts hugging the top standard deviation on the right. Bollinger Bands are very useful to determine a stock's direction and price strength.

How to Configure the Bollinger Bands

    When setting up the Bollinger Bands, you will first be asked to enter a period. Next, you will be asked to enter a field. Then, you will be asked to enter an amount of standard deviations, which is normally 2. After, you will be asked to enter a type of Moving Average, which is normally an SMA. Finally, you have to enter the colors and you are all set up. 

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