The Bollinger channel boundaries are not fixed and depend on the volatility of a financial instrument.

• It measures dispersion of data around its mean (Moving Average).
• It is a volatility indicator.
• The bands automatically widen when volatility increases and contract when volatility decreases.
• Their dynamic nature allows them to be used on different securities with the standard settings.

Usage:

• Can be used to determine entry and exit points for a trade.
• The bands are often used to determine overbought and oversold conditions.
• It can be used to identify M-Tops and W-Bottoms or to determine the strength of the trend.

Bollinger Bands have a useful feature:

• The price stays about 90-95% of the time within the channel.

Bollinger Bands differ from regular Envelopes:

• Bollinger Bands expand or contract according to the standard deviation of the moving average.
• Envelops are often placed at a fixed percentage beyond the moving average.

• If there is no clear-cut trend, the price deviates slightly from the mid-line.
• As soon as the trend gains strength, the deviations become larger, and the channel's boundaries diverge.

Buying in an uptrend, if the price has tested the middle line from above and is heading towards a trend;

Selling in a downtrend, if the price has tested the middle line from below and is heading towards a trend.

We can use Bollinger Bands with different market condition or different market movements, we can use during uptrend, downtrend, and sideways. And with every market condition, there are many strategies that we can use but here we will mention some of them.

During an uptrend, prices move most of the time above their mean (Moving Average).

• It means that prices make higher lows and higher highs as there is control from buyers.

• Buy when prices crossover above Moving Average and the target will be the Upper Band.
  • Prices > MA = Buy, Upper Band = Target