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Computerized Investing > First Quarter 2012

Bollinger Bands

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by CI Staff

Volatility in the markets has seemingly been on the rise the last couple of years. As a result, many traders and investors are looking for methods of gauging the volatility in securities.

One popular tool is Bollinger bands, developed by John Bollinger in the late 1970s and early 1980s. Bollinger bands are volatility bands placed above and below a moving average of closing prices. The bands use standard deviation as the measure of volatility—the bands automatically widen when volatility increases and narrow when volatility decreases. Bollinger chose standard deviation because of its sensitivity to extreme price deviations.

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