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Bollinger Band

Bollinger Bands, created by John Bollinger, consist of three lines: the middle line is a simple moving average (usually over 20 periods), and the upper and lower bands are typically two standard deviations away from this moving average. As volatility changes, these bands expand and contract allowing traders to analyze trends and volatility.

Bollinger Band usage

Traders can quickly identify overbought or oversold conditions with Bollinger Bands. When the price touches or exceeds the upper band, it may signal that the asset is overbought, and a reversal or pullback might be near. Conversely, when the price touches or falls below the lower band, it may indicate that the asset is oversold, and a rebound could be imminent. Also, when the bands narrow, volatility might increase shortly and decrease when the bands are wide.

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