Glossary
Bollinger Bands
A volatility indicator consisting of a middle SMA and two standard-deviation bands plotted above and below it.
Bollinger Bands expand and contract based on market volatility. When the bands squeeze together, it signals low volatility and a potential breakout. Prices touching the upper band may indicate overbought conditions, while prices at the lower band may indicate oversold conditions.
Key Points
- A 'squeeze' signals a volatility contraction that often precedes a large move.
- Bands are not a standalone signal; combine them with volume or trend analysis.
- Common settings are a 20-period SMA with 2 standard deviations.