Bollinger Bands are a technical analysis tool that rose to fame sometime in 1980. The gentleman responsible for the creation of this tool is John Bollinger.

Overbought and Oversold conditions are the primary use of Bollinger Bands in the forex markets. It is normally used in forex trading but especially in stock trading. However, the foundation of this indicator can be attributed to work done by a researcher named Hurst.

While Hurst’s work dealt with fixed tools, Bollinger made it dynamic instead. Bollinger did this by running a 20 period moving average, on chart prices with the addition of two bands on either side. Numerous traders have been using it with a variety of indicators which include the stochastic indicator or RSI indicator. Areas of support and resistance are also identified with the use of bollinger bands.

Price usually tends to fluctuate within the bands. Also, should price close outside of the deviation bands, this sometimes signals a change in the general trend. Prices tend to bounce of the middle band making it…