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John Bollinger developed the Bollinger Bands, a technical analysis tool, in the early 1980s. It is a volatility indicator made up of two standard deviation lines, one above and one below the simple moving average. Depending on the market's volatility, the space between the band's changes, growing when prices are erratic and shrinking when they are steady.
Traders and investors frequently employ Bollinger Bands in finance to help them find prospective buying or selling opportunities in securities. In order to evaluate whether a security or other financial asset is overbought or oversold, the bands are frequently used. A stock is deemed overbought when its price exceeds the upper Bollinger Band and oversold when it falls below the lower Bollinger Band. This could serve as a possible buy or sell indication for traders and investors.
To spot future trend reversals, Bollinger Bands can also be employed. It can be a sign that the trend is changing when the price of an investment crosses above or below the Bollinger Bands. Bollinger Bands should, however, be used in conjunction with other technical analysis tools in order to develop a comprehensive trading strategy. They are not an independent indicator, it is crucial to remember.
