Swing Trading Indicator: 5. Bollinger Bands

Bollinger Bands is a technical indicator based on standard deviation which generates trading signals. It displays two standard deviation lines above and below the simple moving average of the asset price. Bollinger Bands form a kind of "corridor" on the chart, within which the price chart moves.

Signal type: Lagging; Entry/Exit

The basic setup: the traditional Bollinger Bands setup assumes that the price of the asset cannot stay constantly above or below two levels of standard deviation for a long period of time. Therefore a sell signal is generated if the price crosses the upper band, and a buy signal if the candle rebounds from the lower band. The average line acts as a dynamic support.

Example. The following chart for $TSLA shows that price is constantly moving within the Bollinger Bands. Whenever the price touches the lower band, it immediately bounces and moves up, confirming a buy signal. Similarly, whenever the price touches the upper band, it starts to recover, confirming a sell signal.

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