Bollinger Bands are a volatility indicator developed by John Bollinger, consisting of a middle band (typically a 20-period simple moving average) and two outer bands set at standard deviations above and below the middle band. The bands widen during periods of high volatility and contract during periods of low volatility, a phenomenon known as the 'Bollinger Squeeze.' Traders use Bollinger Bands to identify overbought and oversold conditions, potential breakouts, and mean-reversion trade setups.
Example
“Price touched the lower Bollinger Band on high volume and then reversed sharply, suggesting a potential mean-reversion bounce.”