Bollinger lines, or bands (Bollinger Bands), are a popular technical-analysis indicator for financial markets that reflects volatility and deviations of an asset's price from its average level. The indicator consists of three lines: a central moving average and two boundaries located above and below it. The boundaries are built on the basis of the price's standard deviation, so when volatility rises the corridor widens, and during calm periods it narrows.
Bollinger Bands are applied to charts of cryptocurrencies, stocks, commodities and currency pairs. They help traders assess how far the current price is from its average value and observe the dynamics of market activity. A narrowing of the bands is often interpreted as a period of low volatility that may precede a notable price move.
How the indicator's signals are read
- The price moving beyond the upper boundary may indicate a strong upward move.
- A break of the lower boundary may signal a strong downward move.
- Price fluctuating within the corridor is usually read as the absence of clear signals.
It is important to remember that Bollinger Bands do not predict the future but only describe the current behavior of the price. The indicator's signals can be false, so experienced traders use it in combination with other methods of analysis and risk management rather than as a standalone guarantee of a result.
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