Bollinger bands:

Bollinger bands are a technical tool used by many in which lines are plotted two standard deviations above and below a moving average, and at the moving average itself. Because standard deviation measures volatility, these bands will be wider during increased volatility and narrower during decreased volatility. Some technical analysts consider a market which approaches the upper band to be overbought, and a market which approaches the lower band to be oversold. The closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.

When using Bollinger Bands, designate the upper and lower bands as price targets. If the price deflects off the lower band and crosses above the 20-day average (which is the middle line), the upper band comes to represent the upper price target. In a strong uptrend, prices usually fluctuate between the upper band and the 20-day moving average. When that happens, a crossing below the 20-day moving average warns of a trend reversal to the downside. In a perfect world, you will see the price bounce between either the upper or lower band against the center. So, if EUR/USD is bouncing off the upper band and the center line, you can trend it in a channel, so when the price hits the center line, it should bounce back up towards the upper band.

Setup: The default settings for Bollinger bands are 2.0 standard deviations around a 20 day exponential moving average.

If you have any questions related to Bollinger bands, please feel free to ask.