Online Trading Concepts

Bollinger Bands®

Bollinger Bands is a versatile tool combining moving averages and standard deviations and is one of the most popular technical analysis tools available for traders. There are three components to the Bollinger Band indicator:

  1. Moving Average: By default, a 20-period simple moving average is used.
  2. Upper Band: The upper band is usually 2 standard deviations (calculated from 20-periods of closing data) above the moving average.
  3. Lower Band: The lower band is usually 2 standard deviations below the moving average.

Bollinger Bands (in blue) are shown below in the chart of the E-mini S&P 500 Futures contract:

Bollinger Bands 20 day moving average

There are three main methodologies for using Bollinger Bands, discussed in the following sections:

  1. Playing the Bands
  2. Bollinger Band Breakouts
  3. Option Volatility Strategies

Next Page - Playing the Bands

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