A Bollinger Band is a technical analysis tool defined by a set of trendlines plotting two standard deviations (positively and negatively) away from a simple moving average (SMA) of a security or asset’s price, but which can be adjusted to user preferences. There are three lines that compose Bollinger Bands: A simple moving average (middle band) and an upper and lower band. Many traders believe the closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.
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