Bollinger Bands are a technical analysis tool that is used to measure market volatility and determine potential price targets. The bands consist of three lines: the middle band, which is a simple moving average (SMA) of the price; an upper band, which is the middle band plus two standard deviations of the price; and a lower band, which is the middle band minus two standard deviations of the price.
The bands can be used to identify potential price reversals or breakouts. When the price is trading near the upper band, it is considered overbought, and when it is trading near the lower band, it is considered oversold. Traders may use this information to enter trades or take profits.
Bollinger Bands can also be used to identify trends. If the price is consistently trading above the middle band, it is considered to be in an uptrend, while if it is consistently trading below the middle band, it is considered to be in a downtrend.
Overall, Bollinger Bands provide traders with a visual representation of market volatility and potential price targets, which can be used to inform trading decisions.