Bollinger Bands

This technique was developed by John Bollinger. Two trading bands are placed around a moving average similar to the enve­lope technique. Except that Bollinger Bands are placed two stan­dard deviations above and below the moving average, which is usually 20 days. Standard deviation is a statistical concept that describes how prices are dispersed around an average value. Using two standard deviations ensures that 95% of the price data will fall between the two trading bands. As a rule, prices are con­sidered to be overextended on the upside (overbought) when they touch the upper band. They are considered overextended on the downside (oversold) when they touch the lower band.