Rodden said that the bands don't track price. I was only pointing out that they do indeed follow price. I wasn't suggesting any value or non-value of a simple moving average for use in calculations. I think that is what I said, no? The bands track price. Rodden said they didn't.
Apologies for the delayed response; I had to attend to family business here. The bands don't have to be expandable to infinity to be valid as approximate limits to price; they track the probability of a trade occurring within them with 95% confidence. As the trader reviews the BB's he/she can see how the instrument's volatility has been fluctuating to that point. For volatility to fluctuate, obviously trades are occurring at their respective prices and YES, db, the bands will follow the price trend, but only as an envelope, with increasing crudeness as volatility increases. Check the BB's of an active issue, especially one with a strong trend. You'll find the price tending to hug one line or the other, with occasional shifts toward the opposite line. In this instance, the nearer line functions somewhat as a price tracker - but what about the other line? The only time BB's function as price trackers per se is when volatility is very low, but generally, as price trackers, BB's are very crude - indicating, as they do, only a general region of price. This is because BB's track the volatility of price, not price per se. Mathematically, BB's are a function of a function of price: g(f(x)) where x is price, f(x) is volatility of price, and g is the recording of the volatility of price - the actual bands themselves. I concede that BB's do track price, but only very crudely as that is not their raison d'etre.
I've read Harry's posts. Mad genius excuses a lot of shortcomings - including the occasional grammatical slip. No offence intended Harry.
I was in such a hurry to respond to the first part of jbtrader's post that I didn't get the interesting notion presented in the last paragraph ( where the actual question is posed ) . " What are the psychological principles behind the standard deviation numbers?" . Why does greed generate 2-3 SD's of volatility while fear can generate much more? As manifested in stock activity it appears to be a terrific question, but - on the other hand - there are other arenas of human endeavor where greed appears to be the dominant emotion. People will risk their lives to protect their property or to take the property of others. Again, competitors may risk everything to win a valuable reward. War, where fear is omnipresent, is often fought over materialistic issues that have their roots in what we might call greed. Yet, it is true - in the market, fear-motivated moves tend to be more volatile than those motivated by greed. Maybe the answer is that greed per se isn't really what motivates people to invest; maybe buying is inherently less emotional than selling. Maybe. Interesting question though.