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Bollinger Band Stdv Formula?

  • #1
  • First Post: Jul 4, 2007 11:17am Jul 4, 2007 11:17am
If I have a bollinger band of (20,2)

What is the formula for the Standard Deviation, in layman's terms? (Not the whole formula)

How about ATR?
  • #2
  • Jul 4, 2007 11:28am Jul 4, 2007 11:28am
Quoting Skyhr
What is the formula for the Standard Deviation, in layman's terms?
think of it like this...if you take a bunch of samples of something, what is the average difference you will find between those samples? thats sort of what the "standard deviation" is. so if you take 10 market prices (your sample), the standard deviation of those prices tells you something about how close together they are. once the stdev is calculated for this set of 10 prices, you can then evaluate future prices based on the sample. for instance, the next price might be way off (ie 3 stdevs away) or it might be fairly similar to the ten samples (0.1 stdev away).

ATR is a very similar indicator, but imo stdev has more uses, and tells us more.
Relax and be happy.
  • #3
  • Jul 4, 2007 12:02pm Jul 4, 2007 12:02pm
Hi!

I've tried to explain this a little on this thread, second "article".

http://www.forexfactory.com/showthread.php?t=36646

Best regards,
-P
Virtue finds and chooses the mean. Aristotle, Ethica Nichomachea
  • #4
  • Jul 4, 2007 12:37pm Jul 4, 2007 12:37pm
Quoting Skyhr
If I have a bollinger band of (20,2)

What is the formula for the Standard Deviation, in layman's terms? (Not the whole formula)

How about ATR?
The standard deviation is the mean deviation from an average... in other words, an average of the average. This is done in absolute terms (values that fall below the mean are considered positive instead of negative).

The ATR is basically the average of high minus low over X periods. High/Lows are re-adjusted if there is a gap between two bars. The SD is often only done with Close prices.
  • #5
  • Jul 4, 2007 2:37pm Jul 4, 2007 2:37pm
Quoting bluebuddha
The standard deviation is the mean deviation from an average... in other words, an average of the average. This is done in absolute terms (values that fall below the mean are considered positive instead of negative).

.
Actually it's not. I know it sounds picky, but the sample standard deviation (ssd) is based on the root mean square difference, not the mean deviation (which in this case would be zero). The average (absolute) deviation is calculated using the magnitudes of the deviation. Wikipedia is your friend

to the original poster - to get the ssd
1) compute the average of the 20 points, called the "mean".
2) take those twenty points, and for each one form the difference between it and the mean.
3) square each of those twenty differences, and form their average.
4) take the square root of this average.This is your sample ssd, often miscalled the standard deviation.
  • #6
  • Jul 4, 2007 5:09pm Jul 4, 2007 5:09pm
Quoting HalifaxCB
Actually it's not. I know it sounds picky, but the sample standard deviation (ssd) is based on the root mean square difference, not the mean deviation (which in this case would be zero).
Which is why I said it was done in absolute terms. I figured that the absolute value between the data points and the mean averaged would be the same exact thing as the sum of squares divided by the samples and the square root of this number. But yeah, it isn't... it's slightly different.

For example: data is 1,3,5.

Average absolute difference: 1.3333
Standard Dev (sigma): 1.633
Sample Stand. Dev. (s): 2.000
  • #7
  • Last Post: Jul 4, 2007 7:41pm Jul 4, 2007 7:41pm
Quoting bluebuddha
Which is why I said it was done in absolute terms.
picky,picky, picky (got me on that one )
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