The purpose of is to provide a relative definition of high and low prices of a market. By definition, prices are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions
The use of varies widely among traders. Some traders buy when price touches the lower and exit when price touches the moving average in the center of the bands. Other traders buy when price breaks above the upper or sell when price falls below the lower . Moreover, the use of is not confined to stock traders; options traders, most notably implied traders, often sell options when are historically far apart or buy options when the are historically close together, in both instances, expecting to revert towards the average level for the stock.
When the bands lie close together, a period of low is indicated. Conversely, as the bands expand, an increase in price action/market is indicated. When the bands have only a slight slope and track approximately parallel for an extended time, the price will generally be found to oscillate between the bands as though in a channel.
Traders are often inclined to use with other indicators to confirm price action. In particular, the use of oscillator-like will often be coupled with a non-oscillator indicator-like chart patterns or a . If these indicators confirm the recommendation of the , the trader will have greater conviction that the bands are predicting correct price action in relation to market .