What this unit covers
Learn to calculate a simple moving average from closing prices, and extend it into Bollinger Bands.
By the end you will be able to
- Calculate a simple moving average from a short series of closing prices.
- Explain how a Bollinger Band extends a moving average using spread.
- Interpret a widening or narrowing band as changed behavior, not a prediction.
How it starts: A Zigzag Chart, No Clear Direction
- A stock closes at a different price every day this week.
- One day it closes at 97 rupees, well below its usual range.
- Has something actually changed, or is this normal wobble?
Words you will meet
- Bollinger Bands
- A moving average with an upper and lower band drawn two standard deviations above and below it.
- Simple Moving Average (SMA)
- The average of the last set number of closing prices, recalculated as each new day replaces the oldest one.
- Standard deviation
- A measure of how far recent prices typically stray from their average, used here as the spread.
- Closing price
- The price a stock last traded at when the market closed for the day.
In this module: Technical Indicators
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