Bollinger Bands

Bollinger Bands plot trading bands above and below a simple moving average. The standard deviation of closing futures prices for a period equal to the moving average employed is used to determine the band width. This causes the bands to tighten in quiet markets and loosen in volatile markets. Bollinger Bands can be used to determine overbought and oversold levels, locate reversal areas, project targets for commodity market moves, and determine appropriate commodity stop levels. The bands are used in conjunction with indicators such as RSI, MACD histogram, CCI and Rate of Change. Divergences between Bollinger bands and other indicators show potential action points. As a general guidline, look for buying opportunities when prices are in the lower band, and selling opportunities when the price activity is in the upper band.

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