7-14 Bollinger Bands

chapter7-14aIn the 1980s, John Bollinger developed a new technical analysis tool to measure the highs and lows of a security price relative to previous trade data. These “trading bands” help investors track and analyze the “bandwidth” of stock prices over a period.

The object of Bollinger Bands is to identify a “relative” definition of high and low prices over a specific period. Along with identifying trends, these charts will help you measure the volatility of a security. As you examine the bandwidth of a stock, you will notice the variations (standard deviations) on both the plus and minus sides.

Mark's Tip

Bollinger Bands are a favorite tool of Swing traders because they produce easy to see tunnels from which to trade as prices reach, or even exceed, the bands.

Veteran analysts and investors often use this information to a) make purchase and sale decisions, and b) to determine where support Support in a stock chart forms at an area where the stock’s price seems to not want to move lower. This is due to the presence of buyers at this lower target price.  / resistance Resistance in a stock chart forms at an area where the stock’s price seems to not want to move higher. This is due to the presence of sellers at this higher price. levels are, which may also indicate future movement. You’ll see three lines showing the moving average The Moving Average is a line on a chart that smooths out the recent price history by calculating the average price over 30 or 60 days (or any number of days). (see above) and standard deviations on the high and low side of the stock price.


John Bollinger is known to the public for his many years of market analysis and commentary on television — first on Financial News Network, where he was the Chief Market Analyst — and subsequently on CNBC. John Bollinger is also well known to professional investors. An avid researcher, he has developed a number of widely used investment tools and analytical techniques. His Bollinger Bands and related tools have been integrated into most of the analytical software and charting platforms currently in use.