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We can all agree that we have done justice to moving average indicator. Let us take it a step further by discussing Bollinger bands.
BOLLINGER BANDS
The Bollinger bands give traders an idea of where the market is moving based on prices. It involves the use of three bands—one for the upper level, another for the lower level, and the third for the moving average. When prices move closer to the upper band, it indicates that the market may be overbought. Conversely, the market may be oversold when prices end up moving closer to the lower or bottom band
Bollinger Bands are a technical analysis tool comprising of a volatility indicator that measures the relative high or low of the price of an asset in relation to previous trades. The bands widen when there is a price increase signaling a high volatility, and narrow when there is a price decrease suggesting a low volatility.
Bollinger Squeeze
When the bands come close together, constricting the moving average, it is called a squeeze. A squeeze signals a period of low volatility and is considered by traders to be a potential sign of future increased volatility and possible trading opportunities.
Conversely, the wider apart the bands move, the more likely the chance of a decrease in volatility and the greater the possibility of exiting a trade. However, the bands give no indication of when the change may take place or in which direction the price could move. As a result of this, traders use other aspects of technical analysis to anticipate or confirm a directional break.
In summary, Bollinger Bands can be a useful tool for traders for assessing the relative level of oversold or overbought of an asset and provides them with insight on when to enter and exit a position. Buying when the price of the asset cross below the lower Bollinger Band often helps traders take advantage of oversold conditions and profit when the price moves back up toward the center moving-average line. Using this tool correctly can help investors and traders make better decisions and hopefully earn profits.