IN PLAIN ENGLISH
Think of the bands as a channel the price tends to stay inside. When price touches the upper band the stock may be stretched; when it touches the lower band it may be oversold. When the bands squeeze together, a big move is often coming.
FULL DEFINITION
A volatility indicator consisting of a middle band (20-period SMA) and two outer bands placed two standard deviations above and below it. The bands widen during high volatility and contract during low volatility.
EXAMPLE
AAPL's 20-day SMA is £180. The upper band is £195 and the lower band is £165 (two standard deviations each). If price reaches £195 the stock is at the top of its recent range — historically it often pulls back from there.
Educational content only. It is not personal financial advice.