Among the many indicators in technical analysis, Bollinger Bands, with its unique advantage of 'visualized volatility', has become a common tool for both beginners and experienced traders. However, many beginners easily simplify it as 'support and resistance lines', overlooking the underlying statistical core. This article starts from the basic definitions to help you understand the composition, core principles of Bollinger Bands, and why it can serve as a 'barometer' for assessing market sentiment.
The core of the Bollinger Bands consists of three lines, which are not fixed but dynamically adjust with price fluctuations: the middle band is the preset 20-day simple moving average (SMA 20), representing the average price level of the market; the upper band is the middle band plus two times the standard deviation, while the lower band is the middle band minus two times the standard deviation. Here, the 'standard deviation' is key; in statistics, it measures the dispersion of data, and in the market, it corresponds to price volatility.
From a probabilistic perspective, when using 2 standard deviations as parameters, prices will spend 95% of the time running between the upper and lower bands. This characteristic determines the core value of the Bollinger Bands: when prices deviate from this "normal range," it often indicates that the market has entered an extreme emotional state; the width of the bands directly reflects the increase or decrease in volatility. For beginners, remembering that "wide bands = high volatility = intense emotions, narrow bands = low volatility = calm emotions" captures the first step in understanding Bollinger Bands.
It should be noted that the core function of the Bollinger Bands is to "reflect trends and volatility," rather than directly provide buy and sell signals. Its value lies in offering traders a reference framework for the "state of the market." Subsequent trading decisions need to further consider the relative positions of price and bands, candlestick patterns, etc. Understanding this point is crucial to avoid falling into the trap of "mechanically reading charts."@男神说币 #加密市场观察 $BTC
