Bollinger Bands are technical analysis tools for trading developed by John Bollinger in the 1980s. These trading bands analyze the price and volatility changes in a particular financial asset using a specific formula.
Bollinger bands consist of three lines drawn on the price chart of the financial instrument, commodity, or cryptocurrency being analyzed. These lines illustrate the various highs and lows in the price action and their relative strength, measured based on how near or far they are from the drawn lines.
A widening of the Bollinger bands indicates higher volatility, while a narrowing of these bands suggests a decline in the volatility of the asset's price. In addition, these Bollinger bands can also help identify when a particular financial asset is overbought or oversold within a specific timeframe.
Bollinger bands are useful technical analysis tools used by crypto traders. For highly volatile cryptocurrencies, this strategy is highly effective in understanding when price changes could occur based on fluctuations in market volatility.