Bollinger Bands
It’s possible to utilize a wide array of more sophisticated tools.
Bollinger
bands attempt to combine the idea of a moving average with moving zones
of support and resistance. The levels of support and resistance for a stock
are calculated at any given time using the standard deviation. Bollinger
bands will include a simple moving average curve in the center to represent
the mean stock price. There will be
upper and lower level curves, which
show two-standard deviations from the mean. Here we see a chart of Apple
using Bollinger bands:
For the time period shown, Bollinger bands
provide a great deal of
information. The mean share price for the period was $194.38, while the
upper line, two standard
deviations above the mean, was $206.05. The
lower line, which is two standard deviations below the mean, is $182.71.
Knowing these values can be useful to some traders. For example, options
traders that sell put options can use the values of the standard deviation to
select their prices.