Bollinger Bands

The middle band is usually a 20-period simple moving average — your reference for the short-term trend. The upper and lower bands sit two standard deviations above and below it. Statistically, price spends the large majority of its time inside the bands, so the edges represent statistically 'stretched' prices.

That construction is the whole point: the bands aren't fixed-width channels, they breathe. Width itself becomes information. Narrow bands mean low volatility; wide bands mean high volatility. Reading that width is often more useful than where price sits within the bands.

When the bands pinch tightly together, volatility has collapsed — the market is coiling like a spring. These 'squeezes' are among the most-watched Bollinger signals because periods of unusually low volatility tend to be followed by periods of high volatility: a big move is often brewing.

But here's the catch the bands cannot tell you: direction. A squeeze warns that something is coming, not which way it'll break. So use the squeeze to get alert and prepared, then let structure — a breakout from a level, the higher-timeframe trend — tell you the direction to trade.

Bollinger Bands behave completely differently depending on regime, and mixing the two up causes losses. In a sideways range, price tends to bounce between the bands — fading the upper band back toward the middle, buying the lower band, treating the bands as a mean-reversion tool.

In a strong trend, that same tactic is a disaster. Price will 'ride the band,' hugging the upper band on the way up for bar after bar. Touching the upper band in an uptrend is a sign of strength, not a sell signal. Always know whether you're in a range (fade the bands) or a trend (respect them as momentum) before you act.

Bollinger Bands are a context tool, best paired with a trigger. A classic combination: wait for a squeeze to flag a coiling market, then watch a breakout from a horizontal level for direction, and confirm with volume or momentum. The bands set the stage; another tool calls the play.

Some traders also watch for 'band walks' ending — when price that's been riding the upper band finally closes back inside, momentum may be cooling — or pair the bands with RSI divergence near a band extreme for reversal setups in ranges. As always, the band is a piece of evidence, not a complete system.