Bollinger Bands

Bollinger Bands are a type of technical indicator developed by financial analyst and author, John Bollinger in the 1980s.

Simply expressed, Bollinger bands are made up of two types of lines. The first is a simple moving average (normally 20-period) and the second is a set of standard deviation lines plotted over and above the simple moving average (the top line is one standard deviation above and the bottom line is one standard deviation below the SMA line).

These bands are very useful for trading breakouts as they provide a visual representation of low volatility and low volume. This is called “the squeeze” and takes place when the upper and lower Bollinger bands come together.

This usually takes place before an asset decisively breaks either up or down. Once this happens and the Bollinger bands widen, the indicator can be used to monitor overbought and oversold conditions by seeing where the price is in relation to the upper or lower bands.