Bollinger Bands aid investors by indicating market volatility using standard deviations around a 20-day moving average, helping identify overbought and oversold signals.

Momentum-Seeking Strategy The most common way to use Bollinger Bands is to buy stocks when prices rise above their top band and sell them when they fall below.

Bollinger Bands make it relatively easy to find situations where stocks are experiencing contractionary phases, which may signal the security is ready to transition to an expansionary phase.

To increase portfolio diversification, in this article, we will evaluate using another very well-known indicator in the trading landscape: Bollinger bands.

Trading with Indicators — Bollinger Bands Bollinger Bands are envelopes placed two standard deviations above and below a simple moving average of the price.