Bollinger Bands

Developed by John Bollinger in the 1980s, Bollinger Bands are a type of statistical chart portraying the prices and volatility of an asset over time. Bollinger bands are comprised of a moving average and two plotted set of lines; portraying the standard deviation above and below the moving average. When the bands widen; the charted asset is characterized by high volatility. When the bands narrow; the charted asset is characterized by low volatility. When an asset’s price is closer to the lower band then it is regarded as being oversold. On the contrary, when its price is closer to the upper band it is thought to be overbought. In an upward trend the price will move between the moving average and the upper band; if it crosses below the moving average a downward trend may be in effect. Conversely, in a downward trend the price will tend to move between the moving average and the lower band; if it crosses above the moving average, an upward trend may be in effect.