Bollinger bands are volatility-based price bands above and below a moving average on a price chart. They are used to establish the range of what extreme price moves would be from the current moving average value given historic volatility. Bollinger bands adjust to changes in volatility, with increased volatility giving rise to a wider price band and reduced volatility giving rise to a narrower price band. A price move to the higher or lower Bollinger Band is a measure of how volatile prices are. Several trading strategies may use these moves as entry points to trade against an extreme price move.
[Example of chart with Bollinger bands]