In this article we are dedicated to one of the advanced charting features most used by online trading experts, **Bollinger bands** . These **are based on the volatility of a security or its ‘standard deviation’. **Before continuing, let’s better define these two concepts.

To see Bollinger bands in action, you can easily apply them on the eToro trading platform , which can also be accessed for free with a demo account and without depositing, **from this official page** .

**Contents**show

## Volatility and Standard Deviation: Key Concepts for Understanding Bollinger Bands

The * volatility * in economics is an index representing the variation of the share price and therefore helps calculate how much and how to change a price at a given time interval.

The ** standard deviation, on the other** hand, is an index of dispersion of experimental measures, that is, an estimate (a calculation by estimate) of the variability of some data or of a random variable. To try this technique for free,

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## Expected value and precision

The base from which to start for the **definition of the standard deviation** and therefore of the **volatility** is the so-called **expected value** . The concept of precision is also linked to this: the **closer you get to the expected value, the more results you will obtain suitable for your study.**

**The standard deviation, seen above, is a way of expressing the spread of data around a position index** , such as the expected value. So in simpler words, the **less deviation there is and the closer it is to the expected value, the more precision there is.**

## How to use Bollinger bands

Let’s now see how to use these concepts and apply them to Bollinger bands. First, to calculate Bollinger bands, a **moving average of days G** (for example, 20 days) is used to which the **value of the standard deviation** multiplied by a certain **factor F** (the multiplier of the standard deviation applied to the historical series). prices, usually 2 or 3).

Here is the result of the configuration set above. Photos (screenshots) are from **Plus500** trading platform .

## What are Bollinger Bands for?

We have seen what factors are used to calculate Bollinger Bands, but **what are they for? **These bands can be **used to measure trend and volatility.**

**In fact, one of the fundamental elements in trading is the calculation of volatility** , in order to **assess the risk** of a certain transaction and **more easily recognize trends and price congestion,** or distribution or accumulation of the stock.

Bollinger Bands can offer **buy and sell signals** if these conditions **are** met:

- The price chart breaks out of the upper band and then re-enters. In this case we have a
**sell signal**. It corresponds to a rapid price increase (exit from the band) and a subsequent adjustment or deceleration (return to the band). - The chart exits the lower band and then re-enters. In this case we have a
**buy signal**. It corresponds to a rapid price drop to a stop and a probable reversal of the trend.

Bollinger Bands could offer false signals, such as exiting from above, re-entering, and continuing the uptrend (or vice versa). For this reason, **John Bollinger himself (the inventor of the bands themselves) recommends using other indicators to test the performance of the bands** , that is, using them together with other functions to have a constant confirmation of their accuracy. When two or more indicators confirm the behavior of these bands, the signal obtained acquires meaning (always bearing in mind that it is a **predictive analysis** , that is, it tries to predict future events and therefore not yet verified).

Go to the next lesson: Standard Deviation

## Bollinger bands faq

**What are Bollinger Bands?**

Bollinger Bands are one of the most used indicators in technical analysis and are used to measure trend and volatility.

**How are Bollinger bands formed?**

To calculate Bollinger bands, a **G-day moving average** is used to which the **value of the standard deviation** multiplied by a certain **factor F** (standard deviation multiplier) is subtracted or added .

**How do you read Bollinger bands?**

The upper and lower bars must be taken into account, between which the price must move.

**What signals do the Bollinger bands offer?**

If the price breaks out of the upper bar and then goes back in, it is a sell signal. If the price breaks out of the lower bar and then re-enters, it is a buy signal.

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