A Bollinger Band is a technical analysis tool defined by a set of trendlines plotted two standard deviations (positively and negatively) away from a simple moving average (SMA) of a security's price, but which can be adjusted to user preferences. Bollinger Bands are a highly popular technique. Many traders believe the closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.
Key takes
Bollinger Bands are a technical analysis tool developed by John Bollinger for generating oversold or overbought signals
There are three lines that compose Bollinger Bands: A simple moving average (middle band) and an upper and lower band.
The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average (which is the centre line), but they can be modified.
When the price continually touches the upper Bollinger Band, it can indicate an overbought signal while continually touching the lower band indicates an oversold signal
Key takes
Bollinger Bands are a technical analysis tool developed by John Bollinger for generating oversold or overbought signals
There are three lines that compose Bollinger Bands: A simple moving average (middle band) and an upper and lower band.
The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average (which is the centre line), but they can be modified.
When the price continually touches the upper Bollinger Band, it can indicate an overbought signal while continually touching the lower band indicates an oversold signal