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Introduction
Many Analysts use simple moving average indicators to trend stocks and indexes; but not many use Bollinger Band indicator in their presentation for some reasons. This article intend to introduce Bollinger Band as one of the important indicators that a trader must always master.
What is Bollinger Band Indicator?
Bollinger Band is actually a derivative of moving average indicator. Instead of just plotting a simple moving average (usually 20-day), it also plots the upper and lower values of the moving average which is two standard deviations away from the simple moving average as shown in the attached graph.
What is a Standard Deviation?
It is a mathematical expression to express the deviation of the values from a mean average. The explanation could be complex but in simple term, standard deviation is just a mathematical tool that can be used to tell what is normal, and what is extra high or extra low of the historic stock price or index. In the above example, the normal 20-day index of STI is ......, the extra high index is .... and the extra low index is ... on 20 Jan 2009.
What the use of Bollinger Band?
Traders often use Bollinger Band to track the movement of the stock or index. This is because it can foretell the extra high and extra low prices based on past historically prices.
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