Option Investor

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Bollinger Bands

Bollinger Bands were developed by John Bollinger and are also referred to as Standard Deviation Envelopes. What differentiates Bollinger Bands from other technical analysis trading bands and envelopes, is that Bollinger believes the market should determine the width of the bands. The Bands are plotted at standard deviations from the moving average of a stock's price according to its volatility. During periods of less volatility, Bollinger Bands will contract and offer a narrower range. It is during these periods that a breakout is more likely. As the volatility increases, the bands will expand. A break through the upper or lower bands at this point can be indicative of a more substantial move to come.