Bollinger Bands

Bollinger bands are a technical indicator that is used to identify trends and to generate buy signals and sell signals. Bollinger bands consist of a moving average and two bands, an upper bollinger band and a lower bollinger band.

The upper and lower bollinger band is determined by the moving average plus or minus 2 standard deviations. Bollinger bands are an overall analysis where a trend channel is formed, this trend channel gets its height from the share price volatility. The upper and lower band of bollinger band acts as dynamic resistance- and support levels for the share price. Bollinger bands give you an idea of how much the stock price may rise or fall in the short term.

Buy signals and sell signals are generated when bollinger bands contract and the stock price breaks out above or below bollinger bands. The standard period for bollinger band is 20 days.