Online Trading Blog

Bollinger bands are one of the most widely used technical analysis tools by all types of traders trading stock, bonds, forex currencies etc. It was developed by John Bollinger. Bollinger bands consist of three bands. One middle band showing the simple/exponential moving average and two standard deviation bands plotted above and below the simple moving average band.

The volatility in the price of the financial instrument can be easily noticed by the widening of the bands – As the volatility increases, the width between middle and side bands increases. The moving in of upper band towards the middle band informs that the market is becoming more over-brought (time to sell instruments), and the moving in of lower band towards middle band informs that the market is becoming more oversold (time to buy instruments). Bollinger bands also give the information about support and resistance levels.

There are many advantages of using Bollinger bands for technical analysis. They include easiness to view and analyze, dynamic price adaptation to the price changes and volatility changes, excellent tool for trend traders and faders, and easiness to employee with other types of technical analysis tools.

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