Bollinger Bands are a technical analysis indicator used to measure market volatility and identify potential buying or selling opportunities. The indicator consists of a set of three lines plotted on a price chart, with the middle line being a simple moving average of the security’s price, and the upper and lower bands serving as a measure of volatility, typically set 2 standard deviations away from the moving average.
In a market with low volatility, the Bollinger Bands will be closer together, while in a market with high volatility, the bands will be further apart. When prices move outside the upper band, it can be a sign that the security is overbought, and a potential selling opportunity, while a move below the lower band can indicate that the security is oversold and a potential buying opportunity.
Bollinger Bands are widely used by traders and investors in making investment decisions, as well as in setting stop-loss orders and determining potential profit targets.
Read technical deep dive into Bollinger Bands.
See also
Technical indicator
Trading strategy
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