What is the Bollinger Bands indicator?
The Bollinger Bands indicator is one of the most famous technical analysis tools created by financial analyst John Bollinger in the 1980s, and it is used to measure market volatility and identify potential entry and exit points.
How does it work?
The Bollinger Bands indicator consists of three main lines:
Middle Band: It is a simple moving average (SMA) of 20 candles.
Upper Band: It is calculated by adding two standard deviations to the moving average.
Lower Band: It is calculated by subtracting two standard deviations from the moving average.
What does the indicator tell us?
When the price approaches the upper band, it means the market may be in a state of overbuying.
And when it approaches the lower band, it may be in a state of overselling.
Narrow Bollinger Bands indicate a period of calm in the market, which may precede a strong price movement.
The widening of the band indicates high volatility.
How do traders use it?
Some use it as a reversal signal: for example, if the price touches the lower band and then rises, it may be a buying opportunity.
Others use it to confirm the trend with other indicators like RSI or EMA.
