About Bollinger Bands

Bollinger Bands :-

Introduced by John Bollinger in the 1980s, Bollinger Bands (BB) is perhaps one of the
most useful technical analysis indicators. BB is used to determine overbought and
oversold levels, where a trader will try to sell when the price reaches the top of the band
and will execute a buy when the price reaches the bottom of the band.
The BB has 3 components:

1. The middle line which is The 20 day simple moving average of the closing prices
2. An upper band – this is the +2 standard deviation of the middle line
3. A lower band – this is the -2 standard deviation of the middle line

Overbought :-
When the price reaches the upper band, the asset is trading at a relatively high price and is
considered overbought. You could now look to sell the asset on the expectation that its price will fall
back towards the central moving average band.
Oversold :-
When a price approaches the lower band, the asset is trading at a relatively low price and is
considered oversold. You could now look to buy the asset on the expectation that the price will go
back towards the central moving average band.
Be cautious, however – just because the price may reach the upper and lower bands does not mean
that the price will reverse. You will need further confirmation — using, for example, candlestick ,Rsi and Macd.
patterns or another indicator – that the price is reversing before you enter into a trade.

How to use Bollinger Bands ?

you can use it to identify Overbought and Oversold situation.

1)When the price reaches the upper band it is considered overbought and tends to fall back
towards the central band.

2)When the price reaches the lower band it is considered oversold and
tends to rise back up towards the central band.

Note : With Bollinger Bands always confirm with Rsi and Macd technical indicators.