Bollinger bands

Bollinger bands  measure the market's volatility on deviations from its moving average. During times of low  volatility, the bands contract closer to its moving average indicating that prices are relatively stable, the bands widen when price deviates further away from the simple moving average indicating huge swings in prices are in effect. Contracting bands indicates consolidation among buyers and sellers, you should pay close attention when the bands contract because there is always a possibility that a breakaway is about to unfold.

The key to bollinger bands is to look for a contracting scenario and carefully assess which direction it might go next. Rarely does the price remain sideways for a long time when these bands contract and therefore a good tool for entry and exit planning.

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