Bollinger Bands (BB) indicator

Bollinger Bands (BB) is a technical analysis tool that consists of a set of lines plotted on a chart, representing a moving average (typically 20 periods) and two standard deviations (usually) away from it. The upper and lower bands indicate the range of price movements that can be considered normal within the given time frame.

The formula for Bollinger Bands is as follows:

• Middle Band = n-period Simple Moving Average (SMA)
• Upper Band = Middle Band + (k x Standard Deviation)
• Lower Band = Middle Band - (k x Standard Deviation)

In this formula, k represents the number of standard deviations from the moving average. The most common value for k is 2, which represents two standard deviations above and below the moving average.

When the price is trading within the bands, it is considered to be in a normal range, while a move above or below the bands may signal a potential trend reversal. For example, if the price moves above the upper band, it could indicate that the security is overbought, while a move below the lower band could indicate that it is oversold.

Traders use Bollinger Bands to identify potential buy and sell signals, as well as to monitor market volatility. A common trading strategy involves buying when the price is below the lower band and selling when the price is above the upper band. Additionally, traders may use Bollinger Bands in conjunction with other technical indicators to confirm trend reversals or to identify potential breakouts.