Bollinger Bands are a type of technical analysis indicator that are used to measure the volatility of a financial instrument. They are plotted two standard deviations away from a moving average, which serves as a measure of the instrument's midpoint. The bands are plotted on a chart, usually alongside the price action of the financial instrument being analyzed.
The upper Bollinger Band is plotted at the level of the moving average plus two standard deviations, while the lower Bollinger Band is plotted at the level of the moving average minus two standard deviations. If the price action of the financial instrument moves away from the moving average, it is considered a signal of increased volatility.
Bollinger Bands are used by traders and investors to identify potential buy and sell signals. For example, if the price of a stock moves to the upper Bollinger Band, it is often considered overbought and a potential sell signal, while if the price moves to the lower Bollinger Band, it is considered oversold and a potential buy signal.
It is important to note that Bollinger Bands are just one of many technical analysis tools, and they should be used in conjunction with other indicators and fundamental analysis to make informed trading decisions.
The upper Bollinger Band is plotted at the level of the moving average plus two standard deviations, while the lower Bollinger Band is plotted at the level of the moving average minus two standard deviations. If the price action of the financial instrument moves away from the moving average, it is considered a signal of increased volatility.
Bollinger Bands are used by traders and investors to identify potential buy and sell signals. For example, if the price of a stock moves to the upper Bollinger Band, it is often considered overbought and a potential sell signal, while if the price moves to the lower Bollinger Band, it is considered oversold and a potential buy signal.
It is important to note that Bollinger Bands are just one of many technical analysis tools, and they should be used in conjunction with other indicators and fundamental analysis to make informed trading decisions.