Setting up a Bollinger Band with Python
So what are Bollinger Bands?
Created in the early 80s and named after its developer (pictured above), Bollinger Bands represent a key technical trading tool for financial traders. Bollinger bands are plotted by two (2) standard deviations (a measure of volatility) away from the moving average of a price. Bollinger Bands allow traders to monitor and take advantage of shifts in price volatilities. Let’s examine the main components of this tool.
Main Components of a Bollinger Bands
- Upper Band: The upper band is simply two standard deviations above the moving average of a stock’s price.
- Middle Band: The middle band is simply the moving average of the stock’s price.
- Lower Band: Two standard deviations below the moving average is the lower band.
According to John Bollinger’s official website, this tool primarily answers the question:
Are prices high or low on a relative basis? By definition price is high at the upper band and price is low at the lower band. That bit of information is incredibly valuable. It is even more powerful if combined with other tools such as other indicators for confirmation
