"Trading Bands" are lines plotted in and around a price structure to form an envelope. It is the action of prices near the edges of the envelope that we are interested in. They are one of the most powerful concepts available to the technically based investor, but they do not, as is commonly believed, give absolute buy and sell signals based on price touching the bands. What they do is answer the perennial question of whether prices are high or low on a relative basis. Armed with this information, an intelligent investor can make buy and sell decisions by using indicators to confirm price action.
The figure above shows an example of this technique: Note in particular the use of different envelopes for cycles of differing lengths. Points A, B, and C deliniate potential bottoms for this market, wherein D and E represent the potential highs. The Bollinger Bands can often show maximum upside and downside movement in an individual stock or an indices. These maximum points are where savvy investors tend to look for buy or sell signals.
The next major development in the idea of trading bands came in the mid to late 1970s, as the concept of shifting a moving average up and down by a certain number of points or a fixed percentage to obtain an envelope around price gained popularity, an approach that is still employed by many.