Bollinger Bands, BB - indicator for MT 4


The Bollinger Bands Technical Indicator (BB) is almost identical to Envelopes. The only difference is that the bands of Envelopes are plotted a fixed distance (%) away from the moving average, whilst the Bollinger Bands are plotted a certain number of standard deviations away from it. Standard deviation is a measure of volatility, hence Bollinger Bands adjust themselves to the different market conditions. If the market becomes more volatile, the bands widen and they contract during less volatile periods.

The BBs are normally plotted on the price chart but they can be also be used on the indicator chart (Custom Indicators). Just like in case of the Envelopes, the interpretation of the Bollinger Bands is based on the fact that the market price tends to stay between the top and the bottom line of the bands. A special feature of the BB indicator is its variable width due to the volatility of market prices. In periods of a significant price change (e.g. of high volatility) the bands widen leaving a lot of space to the price to move in. Whilst low volatility periods the band contracts keeping the market price within its limit.

 

The following characteristics are special to the Bollinger Band:

  1. sudden changes in the market price have a tendency to happen after the band has contracted by decrease of volatility.
  2. if the market price breaks through the upper band, a continuation of the actual trend can be expected.
  3. if the pikes and hollows outside the band are followed by pikes and hollows inside the band, a reverse of the actual trend can happen.
  4. the price movement which has started from one of the band’s lines normally reaches the opposite one. The last Observation can be useful for predicting price guides.

Here you can download the BB indicator: https://www.mql5.com/en/code/7859