Investopedia has a tutorial to help beginner investors understand Bollinger Bands. Developed by John Bollinger, this technique utilizes a moving average with one trading band on top and the other below it. This method uses standard deviation calculations for the bands, notes Investopedia.
The center line in a Bollinger Band is the exponential moving average, with the price channels above and below being the stock's standard deviation. The bands expand or contract depending on whether the stock's price becomes volatile or tight, per Investopedia.
Stocks typically trade in a trend for a long time, with occasional volatility. Using the moving average to filter the price action helps traders visualize these trends and better understand the market, states Investopedia.