Bollinger Bands

Bollinger Bands are a type of price envelope¹⁾

Price envelopes define upper and lower price range levels²⁾

envelopes plotted at a standard deviation level above and below a simple moving average³⁾

The default values are 20 for period, and 2 for standard deviations⁴⁾

help determine whether prices are high or low on a relative basis⁵⁾

the pair of bands is not intended to be used on its own. Use the pair to confirm signals given with other indicators⁶⁾

When the bands tighten during a period of low volatility, it raises the likelihood of a sharp price move in either direction. This may begin a trending move.⁷⁾

⚠️ Watch out for a false move in opposite direction which reverses before the proper trend begins

When the bands separate by an unusual large amount, volatility increases and any existing trend may be ending.⁸⁾

Prices have a tendency to bounce within the bands' envelope, touching one band then moving to the other band. You can use these swings to help identify potential profit targets. For example, if a price bounces off the lower band and then crosses above the moving average, the upper band then becomes the profit target.⁹⁾

Price can exceed or hug a band envelope for prolonged periods during strong trends. On divergence with a momentum oscillator, you may want to do additional research to determine if taking additional profits is appropriate for you.¹⁰⁾

A strong trend continuation can be expected when the price moves out of the bands. However, if prices move immediately back inside the band, then the suggested strength is negated.¹¹⁾

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