Chartered Market Technician (CMT) Practice Exam 2025 – Your All-in-One Guide to Exam Success!

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Bollinger Bands are used to show variations relative to what?

A moving average of prices

Bollinger Bands are designed to illustrate price volatility in relation to a moving average of prices. The bands consist of a middle line, which is typically a simple moving average, flanked by two outer bands that represent standard deviations of the price from the moving average. This framework allows traders and analysts to visualize how current price levels deviate from the average over a specified period, thereby indicating potential overbought or oversold conditions.

The width of the bands adjusts based on market volatility, expanding when the market is more volatile and contracting during calmer periods. This dynamic flexibility makes Bollinger Bands a powerful tool for understanding price movements in the context of historical averages, aiding in decision-making regarding entry and exit points in trading.

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A benchmark index

A volatility index

A trend line

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