Bollinger Bands use standard deviation to create dynamic bands around a moving average. Bands expand during volatility and contract during quiet periods.
Parameters (20, 2)
Upper Band: SMA + 2×StdDev
Middle Band: 20-period SMA
Lower Band: SMA - 2×StdDev
Interpretation
Overbought: Price touches upper band
Oversold: Price touches lower band
Squeeze: Narrow bands = low volatility
Trading Signals
Band squeeze → expect breakout
W-bottom at lower band = bullish
M-top at upper band = bearish
Close Price Overlay
Close near upper band = overbought; near lower = oversold