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What is a 'Bollinger Band®'

A Bollinger Band® is 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.

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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RELATED FAQS
  1. Are Bollinger Bands® useful for analyzing highly volatile securities?

    Discover how the dynamic nature of Bollinger Bands makes them a very useful indicator for securities that have historically ... Read Answer >>
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    Learn about different strategies using Bollinger Bands, and understand how the Bollinger Band is calculated using standard ... Read Answer >>
  3. Are Bollinger Bands® useful for analyzing securities with very low volatility?

    Learn more about Bollinger Bands, a tool based on standard deviations of moving average that can be applied to both high ... Read Answer >>
  4. How are Bollinger Bands® used in forex trading?

    Use Bollinger Bands in forex trading to identify entry and exit points with ranging trends or to spot increasing volatility ... Read Answer >>
  5. Who created Bollinger Bands®?

    Learn about John Bollinger and his widely followed indicator, Bollinger Bands. Explore how traders interpret the different ... Read Answer >>
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    Read about the differences between how Bollinger Bands and moving average envelopes are constructed and what that means for ... Read Answer >>
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