Bollinger Bands

Bollinger Bands

John Bollinger in the 1980′s sought to account for the the fact that prices could be volatile. The Bollinger bands as they came to be known¬† consist of three lines: a (commonly 20 or 21) simple moving average surrounded by a band which is two standard deviations away. The more volatile the market, the wider the bands are. The suggestion is that the closer the price approaches to the outer bands, the higher the chance of that pair being overbought or oversold.

The Bollinger bands are not a tool that can be used on their own; they do not provide a simple buy/sell indication. Bollinger himself suggests that it could be used with MACD and RSI. Reading Bollinger’s own writings leads a person to two conclusions about his method; well thought out and very complicated!