Learn about Bollinger Bands in under 5 minutes

Bollinger Bands are a technical analysis tool used to measure the volatility of a financial instrument, such as a stock, currency, or commodity. They consist of three lines: a simple moving average (usually the 20-day moving average) in the middle, and an upper and lower band that are two standard deviations away from the moving average.

The upper and lower bands are plotted above and below the moving average, respectively, and act as dynamic support and resistance levels. When the price of the instrument moves towards the upper band, it is considered overbought, and when it moves towards the lower band, it is considered oversold.

Traders often use Bollinger Bands to identify potential buying and selling opportunities. For example, if the price of an instrument touches or crosses the upper band, it may signal a potential sell opportunity, while if it touches or crosses the lower band, it may signal a potential buy opportunity. However, it is important to note that Bollinger Bands are not a standalone trading strategy and should be used in conjunction with other technical and fundamental analysis tools.