Named for John Bollinger, its inventor, the Bollinger band is a measure of a stock’s volatility. Remember that higher volatility offers greater opportunities for profit as well as loss, and therefore volatility is rather like the rain: a certain amount is desirable but too much can flood out positions.

In simplest terms, the Bollinger band is a 20 time period simple moving average, calculated on the closing price, extended by two standard deviations on each side. The resulting indicator looks rather like moving averages graphed atop the stock chart, the central blue line following the price bars, and the two standard deviation lines (generally one red and one green) ballooning about them. Read More…