Many traders rely on Bollinger Bands developed by an expert in technical analysis. They consist of three lines:
- A middle band which is a simple moving average (usually 20-period)
- An upper band which is the middle band plus two standard deviations
- A lower band which is the middle band minus two standard deviations
These bands adjust dynamically based on market volatility. When the price moves closer to the upper band, the market may be experiencing strong momentum. When it nears the lower band, it may be under downward pressure.
Traders often use Bollinger Bands to:
- Spot trend reversals
- Set entry and exit points
- Detect volatility changes
For example, if Apple stock breaks above the upper band with strong volume, buy peloton interactive shares it might signal a continuation of an uptrend.
Bollinger Band strategies often include:
- Breakout setups
- Using price action confirmations
Mastering Bollinger Bands takes practice for both beginners and advanced traders.
