Bollinger Bands
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Bollinger Bands are a technical analysis tool that traders use to identify potential trading opportunities. They are a type of volatility indicator that measures the distance between the current price of an asset and its moving average. Bollinger Bands consist of three lines: a middle line, an upper line, and a lower line.
The Middle Line
The middle line is a simple moving average (SMA) of the asset's price over a specified period of time. The most common period used is 20 days, but traders can use any period they want.
The Upper and Lower Lines
The upper and lower lines are two standard deviations above and below the middle line, respectively. These lines represent the range of volatility that is considered normal for the asset.
How to Use Bollinger Bands
Traders use Bollinger Bands to identify potential trading opportunities in a number of ways. One way is to look for breakouts above or below the Bollinger Bands. A breakout above the upper Bollinger Band is considered a bullish signal, while a breakout below the lower Bollinger Band is considered a bearish signal.
