Creating Bollinger bands

Without getting into too much detail, the distance of the bands from the moving average is determined by the amount of volatility in the market. The more the market is moving around, the wider the bands are spread.

As the standard deviation rises and falls with the level of market volatility, the overbought and oversold levels tend to adjust for the market environment. An excellent example of a Bollinger band chart can be seen in Figure 11-11. This is the same data used in the previous two figures, but now the only indicators on the chart are the Bollinger bands.

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