📊Bollinger Bands Indicator📉
Created by John Bollinger to help traders understand the degree of market volatility and identify potential buy and sell areas.
It is based on the idea that prices move within defined ranges most of the time.
How the Indicator is Constructed 🛠️
It consists of 3 main lines:
1- The Simple Moving Average (SMA) for 20 periods, often the middle line.
2- The Upper Band = SMA + (Standard Deviation × 2)
3- The Lower Band = SMA - (Standard Deviation × 2)
In this way, we obtain a price channel that represents the normal price movement range.
How to Read the Indicator 👀
When the price approaches the upper band ➝ The market may be in an overbought area 📈
When it approaches the lower band ➝ The market may be in an oversold area 📉
- When the lines narrow ➝ The market is calm with low volatility, often preceding a strong movement.
- When the lines widen ➝ The market is experiencing high volatility.
Advantages ✅
- Helps identify dynamic support and resistance levels.
- Reveals trend strength and market conditions.
- A flexible tool that can be combined with other indicators like RSI or MACD.
Disadvantages ⚠️
- Not a confirming tool on its own.
- May give false signals in very volatile markets.
- Needs to be combined with other tools for better results.
💡The Bollinger Bands Indicator is a powerful tool for measuring volatility and identifying potential buy and sell areas, but it is not sufficient on its own. The best use is in conjunction with other indicators to enhance decision-making accuracy.
