Bollinger Bands are a technical analysis (TA) device that measures market volatility.
Understanding the Term
Bollinger Bands are a technical analysis tool developed in the 1980s by financial analyst and trader John Bollinger for generating oversold or overbought signals.
Bollinger Bands function as a measurement tool of market price oscillation. Essentially, they serve as an indicator to highlight how prices are dispersed around an average value. It is composed of an upper band, a lower band, and a middle-moving average line called the middle band.
As such, it is used to identify the moments when a particular market presents high or low volatility.
When the price continually touches the upper Bollinger Band, it can indicate an overbought signal while continually touching the lower band, an oversold signal.