Bollinger Bands (BB)

Bollinger Bands, developed by technical trader John Bollinger, are a commonly used form of technical analysis. They consist of upper and lower bands, also known as Envelopes, plotted on either side of a Simple Moving Average (SMA). The distance of each band is based on two standard deviations away from the SMA, allowing them to adjust to changes in price volatility.

Traders use Bollinger Bands to anticipate potential price moves. When volatility is low, the bands narrow, increasing the chance of a breakout in price. Conversely, when the bands widen by an unusually large amount, it may signal the end of an existing trend.

Price often bounces off the bands as they move from one to the other, making it possible to identify potential profit targets. However, in strong trends, the price can hug or even exceed the bands for extended periods.