Bollinger Bands

Bollinger Bands may be used to measure overbought and oversold levels of a security's price.

It consists of:

  • A middle band which is a Simple Moving Average (MA).
  • An upper band located above the middle band.
  • A lower band located below the middle band.

There are 4 periods that we can use to determine overbought and oversold levels:

4 Periods to Determine Overbought and Oversold Levels
Period Term Approximate Length
30 Day Short Term 0-3 Months
50 Day Immediate Term 3-6 Months
100 Day Medium Term 6-12 Months
200 Day Long Term 12 Months or More

 

Ways to Interpret Bollinger Bands

4 Periods to Determine Overbought and Oversold Levels
Buy When the price touches or closes below the Lower Band (Red Line)
Sell When the price touches or closes above the Upper Band (Green Line)

 

Example 1: 30 Day Bollinger Bands

Bollinger Bands 30 Day Period
Source: Thinkorswim by TDAmeritrade

 

Example 2: 50 Day Bollinger Bands

Bollinger Bands 50 Day Period
Source: Thinkorswim by TDAmeritrade

 

Example 3: 100 Day Bollinger Bands

Bollinger Bands 100 Day Period
Source: Thinkorswim by TDAmeritrade

 

Example 4: 200 Day Bollinger Bands

Bollinger Bands 200 Day Period
Source: Thinkorswim by TDAmeritrade

 

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