Bollinger Bands are a technical analysis tool that is used to identify potential buying and selling opportunities in the market. Developed by John Bollinger, Bollinger Bands consist of a moving average and two bands that are plotted above and below the moving average.

The moving average is typically set to a period of 20, and the bands are typically set to 2 standard deviations above and below the moving average. This means that the bands will adjust to changes in volatility, expanding when the market is volatile and contracting when the market is less volatile.

One of the key advantages of Bollinger Bands is that they can help traders identify potential entry and exit points in the market. When a security’s price breaks above the upper Bollinger Band, this can be a signal to buy the security. On the other hand, when the security’s price breaks below the lower Bollinger Band, this can be a signal to sell the security.

In addition to identifying potential entry and exit points, Bollinger Bands can also be used to identify overbought and oversold conditions in the market. When a security’s price moves outside of the Bollinger Bands, this can be an indication that the security is overbought or oversold, and that a reversal may be imminent.

In conclusion, Bollinger Bands are a valuable tool for traders who are looking to identify potential buying and selling opportunities in the market. By using Bollinger Bands in conjunction with other analysis techniques, traders can improve their chances of making profitable trades.