The Bollinger Band indicator is a technical analysis tool used to measure market volatility and identify potential overbought or oversold conditions. It was developed by John Bollinger in the 1980s and remains one of the most widely used indicators in trading stocks, forex, and cryptocurrencies.

Bollinger Bands consist of three lines plotted on a price chart. The middle band is typically a 20-period simple moving average (SMA), which represents the market’s average price over a specific period. The upper and lower bands are calculated by adding and subtracting a set number of standard deviations, usually two, from the moving average. Because standard deviation measures volatility, the bands automatically expand when volatility increases and contract when volatility decreases.

Traders use Bollinger Bands to assess whether prices are relatively high or low compared to recent averages. When the price approaches or touches the upper band, the market may be considered overbought. When it nears the lower band, it may be viewed as oversold. However, these signals are not always reversal points, especially in strong trends where price can “walk the band.”

Overall, the Bollinger Band indicator is valued for its adaptability to changing market conditions and its ability to combine trend and volatility analysis in a single framework.