Bollinger Bands Indicator

Understanding the Bollinger Band Indicator →

Hey there!

Today we’ll discuss an indicator developed by John Bollinger that helps in determining market volatility - Bollinger Bands.

➡️ The Bollinger Band is a lagging indicator used to determine price volatility. It consists of 3 bands - the middle band (20-days SMA), and the upper and lower bands, which are ± 2 standard deviations from the middle band.

➡️ When the bands are expanding i.e. moving away from each other, the volatility is high. When the bands contract (also called a squeeze) i.e. moving closer to each other, the volatility is said to be low. A period of high volatility is always followed by a period of low volatility and vice-versa.

➡️ When the price continually touches the upper Bollinger Band, it can indicate an overbought signal. When the price continually touches the lower band it can indicate an oversold signal.

➡️ Bollinger Bands provides traders with insight on when to enter and exit a position. However, it should be combined with multiple other parameters for confirmation.

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