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Bollinger Band in Stock Market

Bollinger Bands are a technical analysis tool developed by John Bollinger that helps traders assess volatility and potential buy or sell signals. They consist of three lines plotted on a chart:

1.Middle Band:

   -Definition: This is a Simple Moving Average (SMA) of the stock's price, typically set to a 20-day period.

   -Purpose: Serves as the baseline for the upper and lower bands.

2.Upper Band:

   -Definition: The middle band plus two standard deviations of the price. It represents a high price threshold.

   -Calculation: Upper Band = Middle Band + (2 * Standard Deviation).

3.Lower Band:

   -Definition: The middle band minus two standard deviations of the price. It represents a low price threshold.

   -Calculation: Lower Band = Middle Band - (2 * Standard Deviation).

Uses of Bollinger Bands:

-Volatility Measurement: Bands expand when volatility increases and contract when volatility decreases.

-Overbought/Oversold Conditions: Prices touching the upper band may indicate overbought conditions, while prices touching the lower band may indicate oversold conditions.

-Trend Confirmation: A price moving close to or breaking out of the bands can signal continuation or reversal of a trend.

Key Considerations:

-Band Squeeze: When the bands come close together, it can signal a period of low volatility and a potential upcoming price breakout.

-Band Breakouts: Moving beyond the bands does not always indicate a reversal; it can also signal the continuation of the current trend.

Bollinger Bands are widely used to gauge market conditions and guide trading decisions based on price volatility and potential trend changes.

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