How can you use Bollinger Bands to identify price extremes?

Bollinger Bands can be used to identify overbought and oversold conditions in the market. Bollinger Bands use standard deviation in its computation, and applying it as a momentum tool allows traders to trade using the concept of mean reversion. Even contra momentum traders can use it to identify overbought and oversold conditions. If 1 is a momentum trader, one needs to play for a break out with stops placed just below the upper or just above the lower bands. If one is a contra trader, place your stops just above the upper band and just below the lower band. Since Bollinger bands believe that asset prices will converge to average price over time, it does not work in super trending markets such as a rapidly rising or rapidly falling markets.

Price extremes refer to situations where the price of a financial instrument, such as a stock, currency, or commodity, deviates significantly from its average or usual value. These extremes can indicate potential overbought or oversold conditions in the market.

Bollinger Bands can be used to identify price extremes by observing the distance between the bands and the price movements. When the price reaches the upper band, it suggests that the price may be overbought, indicating a potential price extreme. Conversely, when the price touches the lower band, it suggests that the price may be oversold, signaling another potential extreme. Traders often look for confirmation signals such as candlestick patterns or divergences with other indicators to validate these extremes before making trading decisions.

Extreme prices are the deviation from normal behaviour in the markets. Considering the market data as a normal distribution, moves beyond 2 sigma can be considered extreme moves

Bollinger Bands are a technical analysis tool used to identify price extremes. They consist of a moving average line and two bands above and below it that represent standard deviations from the moving average. When prices touch or exceed the outer bands, it suggests that the price is reaching an extreme level, potentially indicating overbought or oversold conditions. Traders often use this information to make decisions about entering or exiting positions based on the likelihood of a price reversal.

Bollinger Bands consist of a middle band, which is usually a simple moving average (SMA), and two outer bands that represent standard deviations from the SMA. Price extremes can be identified when the asset's price touches or moves beyond the outer bands. When the price reaches the upper band, it may be considered overbought, suggesting a potential reversal or pullback. Conversely, when the price hits the lower band, it may be oversold, indicating a potential bounce or reversal.

It is not easier to find extremes when the Bollinger band is expanding, when the band is contracted the upper and lower lines often indicate respective extremes for prices.

Bollinger Bands visually represent the volatility of a stock, i.e, how much and how frequent the price moves above or below an average level. The middle band indicates that average level, while the upper band and the lower band indicate the standard deviations from that average. If the current price crosses above the upper band, then that indicates it has entered the overbought zone (extreme high), from where it could reverse anytime. Similarly if the price crosses below the lower band, it indicates it has entered the oversold zone (extreme low), from where it can reverse anytime. However, it doesn't indicate how long the price would remain at these extreme levels. That depends on how strong the uptrend and the downtrend are.

Utilizing Bollinger Bands involves visually observing extreme price movements in relation to the bands. When prices touch or cross the upper or lower bands, indicating overbought or oversold conditions, we can plot these occurrences for potential reversals. However, as sole signals, these events may lack reliability due to prolonged extreme zones during strong trends. Therefore, traders should analyze additional factors such as band slope, volume, and support/resistance levels to validate signals.

Reversals can be identified using Bollinger Bands when the price touches or exceeds one of the outer bands. If the price touches the upper band and starts to move back towards the middle band, it may indicate a potential reversal to the downside. Similarly, if the price touches the lower band and begins to move back towards the middle band, it may signal a potential reversal to the upside.

It is important to understand the phase of the Bollinger bands before finding the reversals using Bollinger band. In expansion phase wait for the candles to close below or above the upper or lower lines for confirmation of reversal, whereas in contracted phase take entries at upper or lower lines. Also note major reversal patterns fail in expansion phase of Bollinger Band

Watch for the price to touch or cross the upper or lower bands. When the price touches the upper band, it suggests overbought conditions and a potential reversal downward. Conversely, when the price touches the lower band, it indicates oversold conditions and a potential reversal upward

An onset of expansion indicates increased volatility and hence this can be observed around important pivot levels. The slope of the expansion gives an idea of how fast the momentum can be in the markets.

Breakouts can be identified when the price extends beyond one of the outer bands. If the price breaks above the upper band, it may signal a potential bullish breakout and vice versa.

When the price to move outside the bands after a period of consolidation, this signals momentum building and possibly starting a new trend. If the price breaks above the upper band after a narrow range, it suggests buyers are taking charge, possibly leading to a bullish trend

Continuations, or trends, can be identified by observing the direction of the price movement in relation to the middle band .

by using Simple Moving Average (SMA) as a dynamic support/resistance level, and the bands as potential entry/exit points, we can observe the price bouncing off the bands in line with the trend. This shows the price following the trend and potentially resuming its movement after a brief pause. If the price bounces off the lower band during a downtrend, it indicates sellers are still strong, possibly continuing the bearish trend

If you observe the chart you can see when the price goes outside the band it doesn't necessarily indicate that the price is over bought or over sold. But, it indicates momentum and further continuation in the trend.