What is Bollinger Bands? This is one of the most widely used technical analysis tools that many traders apply. The indicator was developed by John Bollinger in the 1980s, and to this day it remains very useful for assessing market volatility.

How Bollinger Bands work is quite simple. It consists of three main lines drawn on the price chart. The middle line is a simple moving average (SMA) calculated over 20 periods, representing the average price over a certain time frame. The other two lines above and below are calculated based on standard deviation—typically multiplying by 2, then adding to or subtracting from the middle line.

I often use Bollinger Bands to better understand how volatile the market is. When the distance between the bands widens, that’s a sign that volatility is increasing. Conversely, when the bands move closer together, volatility is decreasing and a large price move may be preparing.

In terms of interpreting signals: if the price touches the upper band, the asset may be in an overbought condition. If the price touches the lower band, it may be oversold. However, this isn’t always accurate—the price can move outside the bands during strong trends, or it may signal that a reversal is coming.

I usually use Bollinger Bands to identify trade entry and exit points. When the price is near the lower band, it could be a buying opportunity. When the price is near the upper band, it could be a chance to sell or take profit. The bands also expanding can help confirm that a strong trend is underway.

The important thing is that what Bollinger Bands is, is just a supporting tool— it shouldn’t be used on its own. I often combine it with other indicators such as RSI (Relative Strength Index) to increase the accuracy of trading signals. This method helps filter out false signals and improves trading effectiveness in the market.