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John Bollinger, creator of the Bollinger Bands® defines Bollinger bands as ''a technical analysis tool, they are a type of trading band or envelope''. Bollinger bands use a statistical measure known as the standard deviation, to establish where a band of likely support or resistance levels might lie. This is a specific utilisation of a broader concept known as a volatility channel.

A volatility channel plots lines above and below a central measure of price. These lines, also known as envelopes or bands, widen or contract according to how volatile or non-volatile a market is. Bollinger Bands® measure market volatility and provide lots of useful information, including:

●Trend continuation or reversal

●Periods of market consolidation

●Periods of upcoming large volatility breakouts

●Possible market tops or bottoms, and potential price targets

The Bollinger Bands® consist of three bands, which revolve around a centred simple moving average (SMA), with the default value of 20, of which 85% of the time, the price is held within the following boundaries:

  * Upper Band = 20-day SMA + (20-day standard deviation of price x 2)

  * Lower Band = 20-day SMA