Bollinger Bands are a volatility indicator that is displayed as two lines (bands): one drawn above a
simple moving average of the price and one - below. These bands move closer to the moving average when
price volatility is low and move farther away from the moving average when price volatility increases.
Bollinger Bands parameters can be adjusted. The default parameters are: 20 periods for the simple moving
average and 2 for the standard deviations (the distance between each band and the SMA). Increasing the
number of periods - decreases the volatility of the SMA, and decreasing their number - increases the
volatility of the SMA. Increasing the number of standard deviations moves the bands farther away from
the SMA, and decreasing - moves the bands closer to the SMA.
Bollinger Bands parameters are the period and the deviation.
Bollinger Bands are used to determine how volatile a stock is. Stocks move between levels of high and
low volatility, and when the Bollinger bands grip a stock, it is a sign that the stock is consolidating
and that a breakout is inevitable. When the Bollinger bands widen, it is a sign that the stock has burst
out into a new trend.