Bollinger Bands are intervals drawn on equity instruments price chart at standard deviation levels above and below the corresponding moving average. This produces an effect of having the bands widen during periods of price higher volatility and contract during less volatile periods. Bollinger Bands indicate the relative supply and demand for equity instruments. If ###3### price moves close to the top of the interval then it indicates that there is strong demand for the asset, alternatively if equity instruments hugs the bottom of the trading range then it indicates that there is oversupply of the asset.Investors can use prediction functions to forecast Investor Education private prices and determine the direction of financial instruments such as stocks, funds, or ETFs's future trends based on various well-known forecasting models. However, exclusively looking at the historical price movement is usually misleading.
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Bollinger Bands are intervals drawn on equity instruments price chart at standard deviation levels above and below the corresponding moving average. This produces an effect of having the bands widen during periods of price higher volatility and contract during less volatile periods. Bollinger Bands indicate the relative supply and demand for equity instruments. If ###3### price moves close to the top of the interval then it indicates that there is strong demand for the asset, alternatively if equity instruments hugs the bottom of the trading range then it indicates that there is oversupply of the asset.
This indicator was developed by John Bollinger, CFA, an American author and well known financial analyst. Since the Bollinger Bands will nearly always be combined with other indicators when forming a trading system the number of periods used in the evaluation of the standard deviation and moving average of ###3### is very important. Macroaxis uses 15 as a moving average period and 2 for standard deviation. Learn more about Bollinger Bands on bollingerbands.com
Bollinger Band In A Nutshell
When using the Bollinger Band it would be safe to say that adding a momentum indicator could certainly help to sharpen your predictions about the market. For example, if you are using a Stochastic and it is above 80 while the chart is nearing the top of the Bollinger Band, you can have a decent opinion that the market may be becoming over bought. Same can be said for the reverse if the Stochastic is below 20 and the chart is nearing the bottom Bollinger Band.
Taking a look at this charting tool, it allows the trader to see when a stock is in the upper part of its trading range or the lower. The Bollinger Band was created by John Bollinger, and it uses the simple moving average, and plots two standard deviations away from the average. Many traders and investors use the Bollinger Band to determine if a stock or other trading product is becoming over bought and over sold. Using standard deviation, we can assume that there is an above 90% chance that a given data point stays within two standard deviations.
Closer Look at Bollinger Band
As with any charting tool, they are never 100% and should be tested on a demo account before being used. With the Bollinger Band tool, many of the charting platforms will let you change the parameters of the tool to fit your investing and trading style. Another way to use it is with fundamental data, as that can give you an indication of where price may want to go. If the price of a stock is expensive fundamentally, and you see that price is nearing the top of the Bollinger Band, then that could indicate a potential selling opportunity. Either way you decide to use the tool, this has been used by many and continues to be used today. Again, test it on a demo account before transitioning over to a live account to ensure you fully understand how it works.
One of the main advantages of trading using pair correlations is that every trade hedges away some risk. Because there are two separate transactions required, even if Investor Education position performs unexpectedly, the other equity can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Investor Education will appreciate offsetting losses from the drop in the long position's value.
The ability to find closely correlated positions to Microsoft could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Microsoft when you sell it. If you don't do this, your portfolio allocation will be skewed against your target asset allocation. So, investors can't just sell and buy back Microsoft - that would be a violation of the tax code under the "wash sale" rule, and this is why you need to find a similar enough asset and use the proceeds from selling Microsoft to buy it.
The correlation of Microsoft is a statistical measure of how it moves in relation to other instruments. This measure is expressed in what is known as the correlation coefficient, which ranges between -1 and +1. A perfect positive correlation (i.e., a correlation coefficient of +1) implies that as Microsoft moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Microsoft moves in either direction, the perfectly negatively correlated security will move in the opposite direction. If the correlation is 0, the equities are not correlated; they are entirely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally considered weak.
Correlation analysis and pair trading evaluation for Microsoft can also be used as hedging techniques within a particular sector or industry or even over random equities to generate a better risk-adjusted return on your portfolios.
Check out Investing Opportunities to better understand how to build diversified portfolios. Also, note that the market value of any private could be closely tied with the direction of predictive economic indicators such as signals in estimate. You can also try the Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..