Practitioners may also use related measures such as the Keltner channels , or the related Stoller average range channels, which base their band widths on different measures of price volatility, such as the difference between daily high and low prices, rather than on standard deviation.
BREAKING DOWN 'Bollinger Band®'
How to use Bollinger Bands to find Stocks before big breakout runs. How to Streamline analysis of Bollinger Bands. When to use Bollinger Bandwidth and how it works. What indicators to use with Bollinger Bands for higher profits. Limitations of Bollinger Bands. Why they are so Effective. Bollinger Bands are a wonderful addition to your indicators.
Ready to learn more? Watch the free webinar on this page. How to use leading hybrid indicators with Bollinger Bands for more accurate analysis. When price moves up, the bands spread apart.
One thing you should know about Bollinger Bands is that price tends to return to the middle of the bands. If you said down, then you are correct! As you can see, the price settled back down towards the middle area of the bands. What you just saw was a classic Bollinger Bounce. The reason these bounces occur is because Bollinger bands act like dynamic support and resistance levels. The longer the time frame you are in, the stronger these bands tend to be. Many traders have developed systems that thrive on these bounces and this strategy is best used when the market is ranging and there is no clear trend.
When the bands squeeze together, it usually means that a breakout is getting ready to happen. Looking at the chart above, you can see the bands squeezing together. The price has just started to break out of the top band. Based on this information, where do you think the price will go?