Bollinger Bands can be calculated by determining the security's simple moving average, which is commonly a 20-day SMA. The 20-day moving average averages out the closing prices over the first 20 days as the first data point. The price on day 21 will be added to the initial price, and the average will be calculated, and so on. Then, the standard deviation of the security's price needs to be computed. The standard deviation is a statistical measure of average variance used in statistics, economics, accounting, and finance. The standard deviation of a data set indicates how much numbers differ from an average. A standard deviation can be calculated using the square root of the variance, which is the average of the squared differences between the means. Divide the standard deviation by two and add or subtract this amount from each point along the SMA.

Traders should embrace Bollinger Bands as a valuable tool in their technical analysis arsenal for several compelling reasons. These bands, devised by John Bollinger, are adept at revealing market volatility and potential turning points in price trends. By dynamically adapting to market conditions through standard deviation levels around a simple moving average, Bollinger Bands provide a visual representation of price volatility. This aids traders in identifying overbought or oversold conditions, signaling potential reversals or trend continuations. Moreover, when prices touch or breach the bands, it often indicates a significant market event, prompting traders to reassess their positions. Bollinger Bands contribute to a well-rounded trading strategy, assisting in risk management and decision-making. Their ability to adapt to market fluctuations makes them a versatile tool, empowering traders to navigate varying market scenarios with confidence and precision.