Bollinger Bands Trading Strategy
The Bets Bollinger Bands Trading Strategy
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Bollinger Bands, a popular tool among investors and traders, helps gauge the volatility of stocks and other securities to determine if they are over- or undervalued. Developed in the 1980s by financial analyst John Bollinger, the bands appear on stock charts as three lines that move with the price. The center line is the stock price's 20-day simple moving average (SMA). The upper and lower bands are set at a certain number of standard deviations, usually two, above and below the middle line.
The bands widen when a stock's price becomes more volatile and contract when it is more stable. Many traders see stocks as overbought as their price nears the upper band and oversold as they approach the lower band, signaling an opportune time to trade.
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While valuable, Bollinger Bands are a secondary indicator that is best used to confirm other analysis methods. Below, we guide you through how to interpret Bollinger Bands, when the tool is best used, and what other indicators are best matched with it.
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