How to Measure Volatility
2. Bollinger Bands
Bollinger bands are excellent
tools for measuring volatility because that is exactly what it was designed to
do.
Bollinger bands are basically 2
lines that are plotted 2 standard deviations above and below a moving average
for an X amount of time, where X is whatever you want it to be.
So if we set it at 20, we would
have a 20 SMA and two other lines. One line would be plotted +2 standard
deviations above it and the other line would be plotted -2 standard deviations
below.
When the bands contract, it tells
us that volatility is low.
When the bands widen, it tells us
that volatility is high.
No comments:
Post a Comment