A popular indicator created by John Bollinger that allows users to compare volatility and relative price levels over a period of time. It consists of three bands designed to cover the majority of a security’s price action. Prices are considered to be overextended or overbought at the upper band which is thus considered a resistance area. Conversely, they are considered overextended on the downside or oversold around the lower band, becoming a support area. These areas are often used for projecting price targets, as well as initiating trades. Bollinger Bands are plotted at 2 standard deviations above and below a 20-day exponential moving average.
Chart courtesy of Prophet Financial Systems