How do Bollinger Bands work?
Bollinger Bands are a technical indicator used to measure market volatility and identify overbought or oversold conditions. They consist of three bands:
- Middle Band – A 20-period Simple Moving Average (SMA).
- Upper Band – SMA + 2 standard deviations (indicates overbought).
- Lower Band – SMA - 2 standard deviations (indicates oversold).
Key Strategies:
- Overbought/Oversold: Price near the upper band may indicate a reversal down, while price near the lower band suggests a potential bounce.
- Bollinger Squeeze: When bands tighten, low volatility signals a possible breakout.
- Trend Confirmation: In strong uptrends, price tends to "walk the band" near the upper side.
Trade Example:
- Buy when price bounces off the lower band with confirmation
- Sell when price touches the upper band with bearish signals.
- Stop loss: Just below the lower band in a long trade.
Always combine Bollinger Bands with volume, RSI, or MACD for better accuracy!
- Middle Band – A 20-period Simple Moving Average (SMA).
- Upper Band – SMA + 2 standard deviations (indicates overbought).
- Lower Band – SMA - 2 standard deviations (indicates oversold).
Key Strategies:
- Overbought/Oversold: Price near the upper band may indicate a reversal down, while price near the lower band suggests a potential bounce.
- Bollinger Squeeze: When bands tighten, low volatility signals a possible breakout.
- Trend Confirmation: In strong uptrends, price tends to "walk the band" near the upper side.
Trade Example:
- Buy when price bounces off the lower band with confirmation
- Sell when price touches the upper band with bearish signals.
- Stop loss: Just below the lower band in a long trade.
Always combine Bollinger Bands with volume, RSI, or MACD for better accuracy!
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.