Bollinger Bands a technical analysis tool developed by John Bollinger for generating oversold or overbought signalsLearn more are one of the most popular trading indicators and in this video we’ll give you a tutorial on what they are and how you can use them in your trading.
The bands themselves represent two volatility lines around the (typically) 20-day moving average. The two bands are placed at 2 standard deviations from the moving average Calculating moving averages of an asset helps to smooth out price data over time by creating a constantly updated average price.Learn more. This is the concept that John Bollinger came up with in the 1980s.
This statistical approach to trading takes the concept of standard deviations and places it on the chart. The idea behind it is that because standard deviations cover 95% of occurrences, this could mean that 95 out of 100 times, the price will stay within those bands.
Additionally, the moves towards each band can be taken as buy or sell signals. For example if the price starts approaching the upper band, then we might take that as a sign that the market is overbought and the price could probably fall. Vice versa, when the price drops to the lower band, then that would mean that the market is oversold.
Watch the video for even more details about this indicator and let us know in the comments if you have any questions.
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