InvestorQ : How exactly are Bollinger Bands calculated and measured in practice?

# How exactly are Bollinger Bands calculated and measured in practice?

Answer
2 years ago
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This Bollinger Bands are based on the essential principal of (Mean ± Standard Deviation), which is the basis of normal distribution calculation. This is how the calculation process works. First, you must calculate a simple moving average. After that, you must calculate the standard deviation over the same number of periods as the simple moving average. Then apply the basic Normal Distribution rule. For the upper band, add the standard deviation to the moving average. For the lower band, subtract the standard deviation from the moving average. You typically have the range in front of you. This works assuming that the price is depicting a normal distribution over a period of time. If that assumption fails then the Bollinger Bands may not be too useful.

What are the typical values assumed in Bollinger Bands? For the Short term it is the 10 day moving average with bands at 1.5 standard deviations (1.5 times the standard dev. +/- the SMA). For the Medium term it is normally the 20 day moving average, bands at 2 standard deviations (2.0 times the standard dev. +/- the SMA). For the Long term it is normally the 50 day moving average with the bands placed at 2.5 standard deviations ((2.5 times the standard dev. +/- the SMA).

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