Bollinger Bands

Bollinger Bands are a volatility indicator developed by John Bollinger, consisting of a middle band (typically a 20-period simple moving average) with an upper and lower band plotted a set number of standard deviations, usually 2, above and below it. Because the bands are based on standard deviation, they automatically widen when volatility increases and narrow when volatility contracts, a tightening often called a squeeze that traders watch as a sign a larger move may be building. Price touching or briefly moving outside a band is not automatically a buy or sell signal on its own; it is more often read alongside trend direction and momentum indicators such as RSI.