Bollinger Bands (BB)

Bollinger Bands is a widely used technical analysis tool created by John Bollinger in the 1980s. It consists of a set of three lines plotted on a price chart: a middle band (usually a 20-day simple moving average), an upper band (typically two standard deviations above the middle band), and a lower band (typically two standard deviations below the middle band).

The main purpose of Bollinger Bands is to provide a visual representation of price volatility and potential price levels where an asset is considered overbought or oversold. 

Here's how Bollinger Bands are used:

• Volatility Measurement: The width between the upper and lower Bollinger Bands indicates the level of price volatility. When the bands are wider, it suggests higher volatility, and when they are narrower, it indicates lower volatility.
  
  
• Overbought and Oversold Levels: The upper band is often considered a resistance level, and the lower band is considered a support level. When the price reaches the upper band, it suggests the asset is overbought, potentially signaling a price reversal or a period of consolidation. Similarly, when the price reaches the lower band, it suggests the asset is oversold, indicating a potential price reversal or a period of consolidation.
  
  
• Squeeze Pattern: The Bollinger Bands can also help identify periods of low volatility, known as a squeeze. When the bands narrow, it suggests a consolidation phase, and traders often anticipate a breakout or a significant price move when the bands expand again.
  
  
• Price Breakouts: Bollinger Bands can be used to identify price breakouts. When the price breaks above the upper band, it suggests a bullish breakout, indicating potential upward momentum. Conversely, when the price breaks below the lower band, it suggests a bearish breakout, indicating potential downward momentum.
  
  

Traders often use Bollinger Bands in conjunction with other indicators and analysis techniques to confirm signals and make trading decisions. It's important to note that Bollinger Bands are not foolproof and should be used in conjunction with other analysis tools and risk management strategies. They provide valuable insights into price volatility and potential reversal points, but market conditions and other factors should also be considered when making trading decisions.