Bollinger Bands

It is an awesome indicator ,developed by Mr. John Bollinger .

• It can be used in identifying dynamic support and resistance levels

• When the upper band is near the resistance, it is likely that prices may halt for a while or may reverse.
• When the lower band is near the support , it is likely that prices may bounces off from that support level for a while or may reverse.
• However if  either of the bands are far away from the resistance/support, it is less likely that prices will halt there, it may not serve as good support/resistance.

• It can be used in identifying whether market is trending or ranging.

• In a Strong Uptrend : Prices usually rides and hugs the Upper Bollinger Band and upper band continues to point-up.
• In a Strong Downtrend : Prices usually rides and hugs the lower Bollinger Band and the lower band continues to point-down.
• In a Ranging Market : Prices usually moves from One Band to the Other Band and the both bands are usually started flattening.

• It can be used in identifying or measuring volatility of markets/stocks.

• When Bands contracts or squeeze: 
• It indicates lower volatility.
• Such contraction is often followed by a sharp move in prices. i.e a new move is about to take place.
• Some traders buy options during lower volatility, if they see a breakout is likely to happen.
• When Bands expands:
•  It indicates higher volatility.
• Some traders sell options during higher volatility, when bands expands and are far apart from each other , if they see prices returning to mean[moving average/middle band].

• It can be used to confirm and verify trades.
• It can be used to confirm trades when used with other indicators or price patterns.
• Can help in Confirming breakouts and helps avoid trapping in false breakouts.
• Momentum Indicators are best to use with it , for confirming trades.