As mentioned above, Bollinger Bands consist of three core bands:

• The Upper Band - The upper band is usually set at a specified number of standard deviations above the middle band. The standard deviation is a measure of volatility. As price volatility increases, the upper band expands, and as volatility decreases, the upper band contracts
• The Middle Band - The middle band is typically a simple moving average of the price over a specified period. It serves as the centerline for the Bollinger Bands
• The Lower Band - The lower band is set at a specified number of standard deviations below the middle band. Like the upper band, it expands and contracts with changes in price volatility

Traders often use Bollinger Bands in conjunction with other technical indicators and chart patterns to make trading decisions.

Bollinger Bands alone may not be enough to generate reliable overbought and oversold signals. 

Bollinger Bands Uses

Bollinger Bands indicate a few key factors on a price chart, such as:

• Volatility: The width of the Bollinger Bands expands when there is higher price volatility and contracts when volatility decreases. Traders often use this information to identify periods of potential price breakouts
• Overbought and Oversold Conditions: When an asset's price approaches or crosses the upper band, it may be considered overbought, suggesting a potential price reversal or consolidation. Conversely, when the price approaches or crosses the lower band, it may be considered oversold, indicating a potential price rebound or consolidation
• Potential Reversals: Bollinger Bands can help identify potential reversal points when prices touch or move outside the bands. However, it's important to use additional analysis or indicators to confirm a reversal signal
• Trend Continuation: When an asset's price remains between the upper and lower bands, it suggests that the current trend is likely to continue

Bollinger Bands Example

To better understand what Bollinger Bands are and how they work, we can look at an example of the indicator plotted on the S&P 500 price chart:

The upper and lower bands are colored blue, while the middle band is colored orange. 

The indicator shows points where the S&P 500 is overbought and oversold and traders can use these points to go long or short on any of the major S&P 500 ETFs. 

Using this data, traders can choose favorable entry points on the chart and make trades accordingly. 

However, it must be noted that Bollinger Bands are rarely used without the help of other technical indicators, such as the RSI, moving averages, and the Stochastic Oscillator. 

• Bollinger Bands is a commonly used technical indicator that consists of three moving averages, or “bands”
• The middle band is a simple moving average, while the upper and lower bands are placed a few standard deviations apart from the middle band 
• Bollinger Bands indicate overbought and oversold points on a price chart which traders can use as buy and sell signals 
• Bollinger Bands are often used in conjunction with other indicators, such as the RSI, Stochastics, and moving averages