Bollinger Bands

An invention of John Bollinger that is used to evaluate fluctuations in a market.

The idea of Bollinger bands is built around an analytical tool which is used to identify market price signals and conditions that are oversold or overbought in-between a moving average. Thus, there are three lines which are known as the bands: the upper line (upper band), the lower line (lower band), and the middle line which represents the simple moving average. The tool functions the same way as a normal distribution with standard deviations used to determine volatility swings.

Bollinger bands are typically used to find entry and exit points. The weakness of this tool is that it only considers price volatility while taking no notice of other relevant factors in a trade.

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