What are Bollinger Bands and how we can use them as an indicator to buy or sell stocks

upupahcai
2023-01-29

Bollinger Bands

Bollinger Bands are quite a popular technical analysis indicator that is use to measure market volatility. The bands consist of a moving average using 20 days and two standard deviation lines plotted away from the moving average. The upper band represents overbought territory, while the lower band represents oversold territory.

How to use Bollinger Bands to buy and sell stocks 

When the market is volatile, the bands will expand, indicating that prices are moving rapidly. When the market is less volatile, the bands will contract, indicating that prices are moving less rapidly. 

One strategy is to buy when the price touches the lower band(purple) and bands starts to contract and sell when it touches the upper band(yellow) and bands starts to contract. Another strategy is to buy when the price breaks above the upper band and sell when it breaks below the lower band.

Not a standalone indicator 

It is important to note that Bollinger Bands are not a standalone indicator and should be used in conjunction with other technical indicators and analysis such as RSI above 

Thoughts 

I believe Bollinger Bands can be a useful tool for traders and investors to identify potential buy and sell opportunities, but should be used with other indicators and result varies differently from company to company and overall market sentiments

It's is also good to bear in mind prices can stay in the lower or higher bands for indefinite amount of time. 


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