Bollinger Bands are a technical trading tool created by John Bollinger
in the early 1980s. They arose
from the need for adaptive trading bands and the observation that volatility was dynamic, not static as
was widely believed at the time.
The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition prices
are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition
and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions.
Bollinger Bands consist of a set of three curves drawn in relation to securities prices. The middle band
is a measure of the intermediate-term trend, usually a simple moving average, that serves as the base for
the upper band and lower band. The interval between the upper and lower bands and the middle band is determined
by volatility, typically the standard deviation of the same data that were used for the average. The default
parameters, 20 periods and two standard deviations, may be adjusted to suit your purposes.
See Bollinger Bands in action
Get the 22 Bollinger Band rules
Learn how to use Bollinger Bands:
Bollinger On Bollinger Bands" book by John Bollinger, CFA, CMT