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What are Bollinger Bands?

Bollinger Bands is a technical analysis tool used to determine where prices are high and low relative to each other. These bands are composed of three lines: a simple moving average (the middle band) and an upper and lower band. The upper and lower bands are typically two standard deviations above or below a 20-period simple moving average (SMA).

How do you use Bollinger Bands®?

When using Bollinger Bands®, designate the upper and lower bands as price targets. If the price deflects off the lower band and crosses above the 20-day average (the middle line), the upper band comes to represent the upper price target. In a strong uptrend, prices usually fluctuate between the upper band and the 20-day moving average.

What does the width of a Bollinger Band mean?

Further, the width of the band can be an indicator of its volatility (narrower bands indicate less volatility while wider ones indicate higher volatility). Bollinger Bands typically use a 20-period moving average, where the "period" could be 5 minutes, an hour or a day.

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