Bollinger Bands
Volatility channel around moving average — identifies oversold/overbought conditions.
Bollinger Bands are a technical indicator consisting of three lines:
•Middle line — SMA 20 (moving average)
•Upper band — SMA 20 + 2 standard deviations
•Lower band — SMA 20 − 2 standard deviations
Interpretation:
•Price touches upper band — potentially overbought, possible reversal or pause
•Price touches lower band — potentially oversold, possible bounce
•Squeeze (bands narrow) — low volatility, explosion coming
•Expansion — bands widen, strong trend
Bollinger Band Bounce strategy:
•In ranging market: buy at lower band, sell at upper band
•In trending market: lower band is support, upper band is target
Walking the band: In a strong bull trend, price can "walk" along the upper band for a while — that's not a short signal!
Combine with volume and RSI for signal confirmation.