Bollinger Bands

Invented by John Bollinger in the early 1980's, it is one of the more important technical tools used by traders today.

Why should I use it?

Bollinger Bands can help you spot periods of relatively high or low prices (overbought or oversold), by pointing to a possible change in the market's direction.
Therefore, using Bollinger Bands will allow you to find good entry levels for your traders when the price is trading around the upper or the lower band.

What does it look like?

A center line that is usually a simple moving average, and two additional lines, above and below the center line, which are accordingly labeled as the upper band and the lower band.

How does it work?

Bollinger Bands work on a very simply concept - the price is moving in between the upper and the lower bend most of the time, therefore, if the price breaks above the upper band or below the lower band, we can expect it to come back and trade between the boundaries of the bands.
The closer the price moves to the upper band, the more overbought the market - a possible sell signal is created.
The closer the price moves to the lower band, the more oversold the market - a possible buy signal is then created.

Example

Below is an hourly chart of AUD/JPY with the Bollinger Bands indicator.
Notice how the market is changing its direction every time it touches the lower or the upper band, supplying you with good sell signals when price hits the upper band, and good buy signals when the price hits the lower band.