The mathematics defines an envelope of values by using the Highest High or the Lowest Low of the Last 'n' Periods.
Properties
Period1: The number of bars in a chart. If the chart displays daily data, then period denotes days; in weekly charts, the period stands for weeks, and so on. If the default length of the study is chosen (the software uses a period of 10), the study returns the highest of the high price values over the previous 10 bars.
Period2: The number of bars in a chart. If the chart displays daily data, then period denotes days; in weekly charts, the period stands for weeks, and so on. If the default length of the study is chosen (the software uses a period of 10), the study returns the lowest of the low price values over the previous 10 bars.
Interpretation
The rules generally followed for this study are:
Enter the market when one of the bands is penetrated. This indicates a possible start of a trend.
Exit and reverse the position when the opposite band is penetrated.
Another rule you can apply is the
Donchion’s rule, which states:
Cover short positions and go long whenever the price exceeds the high of the previous four weeks.
Reverse long positions and go short whenever the price exceeds the low of the previous four weeks.