For example, a 30-day moving average on any day is the average of closing prices for the
stock over the previous 30-day period. Thus, today??™s average is slightly different from yesterday??™s,
which is slightly different from the day before; hence, it??™s called a moving
average.
Bollinger bands are calculated from this value. The ???upper??? band is the average over
the preceding period plus two times the standard deviation. The ???lower??? band is the average
over the preceding period minus two times the standard deviation. Figure 10-15 and
Figure 10-16 show the price history overlaid with Bollinger bands for MSFT and SBUX.
Figure 10-15. Bollinger bands for MSFT over 100 days
CHAPTER 10 ?– BUILDING A SAMPLE APPLICATION USING ASP.NET AJAX 249
Figure 10-16. Bollinger bands for SBUX over 100 days
These bands are sometimes used to predict the value of a stock based on a projection
of its future value based on its past behavior. A typical rule is to buy the stock when it
penetrates the lower band moving upward or when it ???bounces off??? the lower band, and
to sell it when it penetrates the upper band moving downward or when it bounces off the
upper band.
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