What are Bollinger Bands and how do they help in trend following?
Bollinger Bands are a popular technical analysis tool developed by John Bollinger. They consist of three lines plotted on a price chart: - The **Middle Band** is a simple moving average (SMA), typically set to 20 periods. - The **Upper Band** is the middle band plus two standard deviations of the price. - The **Lower Band** is the middle band minus two standard deviations of the price. ### Components of Bollinger Bands ### How Bollinger Bands Help in Trend Following 1. **Trend Identification:** - **Uptrend:** When prices consistently touch or move along the upper band, it suggests a strong uptrend. The middle band often acts as support during pullbacks. - **Downtrend:** When prices consistently touch or move along the lower band, it suggests a strong downtrend. The middle band often acts as resistance during pullbacks. 2. **Volatility Measurement:** - The width of the bands expands and contracts with volatility. - **Expand...