Bollinger Bands and moving average envelopes may appear to be the same at first glance.

Top 6 Bollinger Bands Trading Strategies

Each of these technical tools is plotted as a multiple-band range over the price action of a stock or security, with the majority of trading occurring within the upper and lower bands. Indeed, both moving average envelopes and Bollinger Bands can be used to assess the relative nature of price movements based on a moving average of the asset's prices, though the specific calculations that govern the placement of exterior bands are different for each tool.

There are different kinds of moving averages, but simple moving averages are just a time-dynamic average price level that can be plotted as a trendline on a price chart.

Moving average envelopes take this line and define a range that is the same distance above and below the moving average based on a chosen percentage. Bollinger Bands do not use a subjective percentage value to place upper and lower bands around the moving average line.

Rather, the Bollinger Bands react to changes in volatility automatically using standard deviations from the moving average. The standard deviation is an expression of the trading range of the asset; a smaller trading range has narrower Bollinger Bands, while a more volatile asset has wider Bollinger Bands.

Standard Deviations and Bollinger Bands | OANDA

This also means the same percentage of price movements is captured within Bollinger Bands, or Both of these indicators are used to gauge trend momentum, watch for breakouts, and identify overbought or oversold conditions.

Traders use one or the other depending on whether they want the added volatility responsiveness of Bollinger Bands.

Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund. Latest Videos PeerStreet Offers New Way to Bet on Housing New to Buying Bitcoin? This Mistake Could Cost You Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam.

Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. By Investopedia December 23, — 4: Discover how the dynamic nature of Bollinger Bands makes them a very useful indicator for securities that have historically Learn about different strategies using Bollinger Bands, and understand how the Bollinger Band is calculated using standard Use Bollinger Bands in forex trading to identify entry and exit points with ranging trends or to spot increasing volatility Learn about John Bollinger and his widely followed indicator, Bollinger Bands.

Explore how traders interpret the different Discover the logic behind using Bollinger Bands as a measure of price volatility for a security, and how the bands adapt Learn more about how to identify buy and sell trading signals when implementing a moving average crossover strategy with Bollinger Bands have become an enormously popular market tool since the s but most traders fail to tap its true potential.

In the s, John Bollinger developed the technique of using a moving average with two trading bands above and below it. Learn how this indicator works, and how you can apply it to your trading. Bollinger Band box patterns set up profitable opportunities when trends give way to well organized trading ranges.

Bollinger BandWidth [ChartSchool]

Learn to pounce on the opportunity that arises when other traders run and hide. Learn how to combine average true range, simple moving average and Bollinger band indicators to gauge market volatility.

Learn how Bollinger's "squeeze" can help you determine breakout direction.

A volatility based 'envelope' indicator that measures the movement An expense ratio is determined through an annual A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. A period of time in which all factors of production and costs are variable.

In the long run, firms are able to adjust all A legal agreement created by the courts between two parties who did not have a previous obligation to each other.

A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over Content Library Articles Terms Videos Guides Slideshows FAQs Calculators Chart Advisor Stock Analysis Stock Simulator FXtrader Exam Prep Quizzer Net Worth Calculator.

Work With Investopedia About Us Advertise With Us Write For Us Contact Us Careers. Get Free Newsletters Newsletters. All Rights Reserved Terms Of Use Privacy Policy.