Bollinger Band®


DEFINITION of 'Bollinger Band®'

A band plotted two standard deviations away from a simple moving average, developed by famous technical trader John Bollinger.

Bollinger Band

In this example of Bollinger Bands®, the price of the stock is banded by an upper and lower band along with a 21-day simple moving average.


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BREAKING DOWN 'Bollinger Band®'

Because standard deviation is a measure of volatility, Bollinger Bands® adjust themselves to the market conditions. When the markets become more volatile, the bands widen (move further away from the average), and during less volatile periods, the bands contract (move closer to the average). The tightening of the bands is often used by technical traders as an early indication that the volatility is about to increase sharply.

This is one of the most popular technical analysis techniques. The closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.

Want to know more? Read The Basics Of Bollinger Bands

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  1. How can I use Bollinger Bands® to trade binary options?

    Bollinger Bands can be used to trade binary options, because they are an effective tool to signal when markets become oversold ... Read Full Answer >>
  2. What is a double Bollinger Bands® strategy?

    A double Bollinger Bands strategy is primarily used as a tool to take advantage of sideways markets. Sideways markets are ... Read Full Answer >>
  3. How do traders use Bollinger Bands® to identify a breakout?

    Traders use Bollinger Bands to identify breakouts by looking for breaks above the upper band on fundamental news and strong ... Read Full Answer >>
  4. Which market indicators reflect volatility in the stock market?

    There are several volatility indicators available for stock traders and analysts to use. Some of the most commonly used ones ... Read Full Answer >>
  5. What is a common strategy traders implement when using the Volume Weighted Average ...

    Using the volume-weighted average price (VWAP) when trading in short-term time frames is highly effective and simple. One ... Read Full Answer >>
  6. Why are STARC Bands important for traders and analysts?

    STARC bands, or Stoller average range channels, provide traders and market analysts with indications of the level of volatility ... Read Full Answer >>
  7. Is using the Donchian channel more risky or more conservative than using Bollinger ...

    Both Donchian Channels and Bollinger Bands are trend-following volatility indicators. They are meant to identify breakouts ... Read Full Answer >>
  8. What does it mean when a stock is trading near the Donchian channel, high or low?

    The Donchian channel is an easy-to-understand moving average indicator. Much like Bollinger Bands, the Donchian system uses ... Read Full Answer >>
  9. How do I create a trading strategy with Bollinger Bands® and candlesticks?

    Bollinger Bands and candlesticks are popular and effective technical indicators in the trading industry. Bollinger Bands ... Read Full Answer >>
  10. What is the logic behind using Bollinger Bands® as an indicator of volatility?

    Bollinger Bands are defined by the trading range of their underlying security issue, making them particularly adaptable to ... Read Full Answer >>
  11. Are Bollinger Bands® useful for analyzing securities with very low volatility?

    Technical trader John Bollinger invented Bollinger Bands as a volatility indicator that can be added to a price chart. Bollinger ... Read Full Answer >>
  12. How do countertrend trading strategies work?

    Countertrend trading strategies are used to enter a market that may be changing direction or simply to profit from the ordinary ... Read Full Answer >>
  13. Are Bollinger Bands® useful for analyzing highly volatile securities?

    Bollinger Bands are specifically designed to adjust to changes in a security's trading range, making them particularly useful ... Read Full Answer >>

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