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Bollinger Bands Meaning

Bollinger Bands are a technical analysis indicator used to assess volatility and help identify when an asset may be overbought or oversold relative to its recent price behavior. The indicator consists of three lines:

Middle band: typically a 20-period simple moving average (SMA)
Upper band: middle band + (usually) 2 standard deviations
Lower band: middle band − (usually) 2 standard deviations

Because standard deviation expands during volatile periods and contracts during stable periods, the bands widen when price volatility increases and narrow when volatility drops. Common interpretations include:

Price touching or moving above the upper band may suggest the asset is stretched to the upside (potentially overbought).
Price touching or moving below the lower band may suggest the asset is stretched to the downside (potentially oversold).
A band squeeze (very narrow bands) often signals low volatility and can precede a large move-but it does not predict direction.

Bollinger Bands are lagging indicators (they respond to past price action), so traders typically combine them with volume, trend indicators, RSI, or support/resistance analysis to avoid false signals.

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