Bollinger Bands
Technical Analysis
What it means
Two lines plotted two standard deviations above and below a 20-period moving average. They widen when volatility rises and squeeze tight when it falls.
Example
Price normally stays within the bands. When it closes outside the upper band at $120, with the middle band at $110, it is stretching -- a pullback or stronger volatility may follow.
Mistake beginners make
Beginners short the upper band and buy the lower band blindly. Touching the band is not a signal; the band can ride along with price for days in a strong trend.
Related terms
- Moving Average — A line showing the average price over a set number of periods, which smooths out noise and…
- Volatility — How much and how fast an asset price swings. High volatility means large price moves in sh…