Bollinger Bands are a popular technical analysis tool used in trading. Here's a brief overview:
What are Bollinger Bands?
Bollinger Bands consist of three lines:
1. A moving average (usually 20-period)
2. An upper band (usually 2 standard deviations above the moving average)
3. A lower band (usually 2 standard deviations below the moving average)
Trading Strategy:
A common Bollinger Band trading strategy involves:
1. Buy signal: When the price touches or breaks below the lower band, it may be oversold, and a potential buy opportunity arises.
2. Sell signal: When the price touches or breaks above the upper band, it may be overbought, and a potential sell opportunity arises.
Key considerations:
1. Volatility: Bollinger Bands expand during high volatility and contract during low volatility.
2. Trend confirmation: Use Bollinger Bands in conjunction with other indicators to confirm trends.
Tips:
1. Adjust band settings according to market conditions.
2. Combine Bollinger Bands with other technical analysis tools.
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