Bollinger Bands: Beginner Guide
The bands themselves represent two volatility lines around the (typically) 20-day moving average. The two bands are placed at 2 standard deviations from the moving average. This is the concept that John Bollinger came up with in the 1980s.
This statistical approach to trading takes the concept of standard deviations and places it on the chart. The idea behind it is that because standard deviations cover 95% of occurrences, this could mean that 95 out of 100 times, the price will stay within those bands.
Additionally, the moves towards each band can be taken as buy or sell signals. For example if the price starts approaching the upper band, then we might take that as a sign that the market is overbought and the price could probably fall. Vice versa, when the price drops to the lower band, then that would mean that the market is oversold.
Watch the video for even more details about this indicator and let us know in the comments if you have any questions.
At Trading 212 we provide an execution only service. This video should not be construed as investment advice. Investments can fall and rise. Capital at risk. CFDs are higher risk because of leverage.
