Bollinger Bands

First proposed by John Bollinger, Bollinger Bands are one of the most popular overlays. This indicator gives you an idea of how the volatility for a security is related to the price levels over a specific period of time. An integral part of the Bollinger Bands is Standard Deviation. Standard deviation ensures that volatility is immediately factored in. The bands can expand or contract based on the volatility.

Bollinger Bands are actually made up of 3 distinct bands. The attempt is to capture a majority of a security's price movement within the bands. A simple moving is at the core of the band and is at the middle. The upper one is the SMA + 2 standard deviations and the lower one is the SMA -2 standard deviations. An example is 20 SMA with 20 SMA + 2 standard deviations and SMA – 2 standard deviations.
The SMA and the number of deviations can be adjusted to suit the personality of the security that is being analyzed.