Indicators / Volatility / Bollinger Bands
Bollinger Bands Explained: Squeeze, Band Walks and Settings
Quick answer
Bollinger Bands are a moving average with a band two standard deviations above and below it. The bands widen when volatility rises and narrow when it falls. A touch of the outer band shows a strong move, not an automatic reversal, and a tight squeeze often comes before a big move.
Video: Bollinger Bands for Beginners.
What Bollinger Bands measure
The middle band is a 20-period simple moving average. The outer bands sit two standard deviations away from it, so they expand and contract with volatility. Roughly 90% of closes fall inside the bands, which is why a close outside them stands out.
How they are calculated
Upper band = middle + 2 × standard deviation (20)
Lower band = middle − 2 × standard deviation (20)
Settings
| Use | Settings |
|---|---|
| Standard | 20 periods, 2 standard deviations |
| Short-term | 10 periods, 1.5 standard deviations |
| Longer-term | 50 periods, 2.5 standard deviations |
How to read Bollinger Bands
1. A band touch is strength
Price tagging the upper band means buyers pushed hard. In a trend, price can "walk the band" for many candles. Selling every touch fights the trend.
2. The squeeze
When the bands narrow to their tightest in months, volatility is unusually low. Low volatility tends to be followed by expansion, so a squeeze warns that a big move may be coming, though not which direction.
3. Trend vs range
In a range, moves to the outer bands that fail and close back inside often return to the middle band. In a trend, pullbacks to the middle band are common entry areas.
Common mistakes
- Fading every band touch. Strong trends ride the band.
- Guessing the squeeze direction. Wait for the breakout candle.
- Ignoring the middle band. It is often the most useful line in a trend.
What to pair Bollinger Bands with
Bollinger Bands FAQ
Does touching the upper Bollinger Band mean sell?
No. It means price moved strongly. In a trend, price can stay at the upper band for a long time.
What is a Bollinger squeeze?
A period when the bands are unusually narrow, showing low volatility. It often comes before a large move.
What are the best Bollinger Band settings?
20 periods and 2 standard deviations, the defaults, are the most widely used and work on most timeframes.