Bollinger Bands differ from envelopes in one major way. Whereas the envelopes stay a constant percentage width apart, Bollinger Bands expand and contract based on the last 20 days' volatility. During a period of rising price volatility, the distance between the two bands will widen. Conversely, during a period of low market volatility, the distance between the two bands will contract. There is a tendency for the bands to alternate between expansion and contraction. When the bands are unusually far apart, that is often a sign that the current trend may be ending. When the distance between the two bands has narrowed too far, that is often a sign that a market may be about to initiate a new trend. Bollinger Bands can also be applied to weekly and monthly price charts by using 20 weeks and 20 months instead of 20 days. Bollinger Bands work best when combined with overbought/oversold oscillators that are explained in the next chapter. (See Appendix A for addi­tional band techniques.)
Centering the AverageThe more statistically correct way to plot a moving average is to center it. That means to place it in the middle of the time peri­od it covers. A 10 day average, for example, would be placed five days back. A 20 day average would be plotted 10 days back in time. Centering the average, however, has the major flaw of producing much later trend change signals. Therefore, moving averages are usually placed at the end of the time period cov­ered instead of the middle. The centering technique is used almost exclusively by cyclic analysts to isolate underlying mar­ket cycles