Bollinger Bands (BOLL)
Bollinger Bands are a technical indicator that consists of three lines:
1. Middle Band: A moving average (commonly a 20-period SMA).
2. Upper Band: Middle band + 2 standard deviations.
3. Lower Band: Middle band − 2 standard deviations.
How It Works
The bands expand and contract based on market volatility:
Expand: When volatility is high.
Contract: When volatility is low.
Price often oscillates between the upper and lower bands.
How It's Used
1. Overbought/Oversold Conditions:
Overbought: Price near or above the upper band, signaling a potential sell.
Oversold: Price near or below the lower band, signaling a potential buy.
2. Trend Breakouts:
A strong move outside the bands often signals the start of a new trend.
3. Mean Reversion:
Price tends to revert to the middle band over time.