Chapter summary

⇒ Bollinger bands are based on the normal distribution, which occurs frequently with variable data of all types and appears as a symmetrical bell-shaped curve when charted.

⇒ An average value or mean is at the centre of the distribution and the standard deviation is a measure of spread on either side of the mean.

⇒ Bollinger bands have a mid-band that’s an SMA calculated on closing prices over the last 20 periods.

⇒ Upper and lower Bollinger bands are spaced at ± 2 standard deviations from the mean.

⇒ An outstanding advantage of Bollinger bands is that they’re shown on a price chart and not as a separate chart below the price chart. This makes it easy to relate price action to the bands without loss of clarity.