Bollinger Bands
A moving average with volatility bands plotted a set number of standard deviations above and below.
Also called: bands · bollinger
Written by Javier Sánchez Ros
In plain language
The middle band is typically a 20-period simple moving average. The outer bands sit two standard deviations away, so they widen in volatile conditions and contract in calm ones.
The bands describe where price has recently been relative to its own variability. Touching a band is not a signal — in a strong trend price can ride the upper band for a long time.
A sustained contraction, sometimes called a squeeze, indicates unusually low volatility and often precedes an expansion.
Worked through
Bands at their narrowest in months
- Band width, six weeks ago
- $5.20
- Band width now
- $1.40
- What it says
- volatility has collapsed
- What it does not say
- which way it breaks
The bands sit two standard deviations either side of a moving average, so their width is a picture of recent volatility. A squeeze this tight says the instrument has gone quiet, and quiet periods are usually followed by loud ones.
The crucial limitation is in the last row. A squeeze carries no directional information whatsoever — it is a statement about the size of the coming move, not its sign — and trading it as though it did is the most common error made with the tool.
The second most common is treating a touch of the upper band as overbought. In a strong trend price can walk along the upper band for weeks, because the band is calculated from the same rising prices it is being compared against.
Where the width genuinely helps is sizing. Narrow bands mean a tight stop is currently reasonable and a larger position fits the same risk; wide bands mean the opposite. That is a volatility read feeding a position size, which is the job the tool actually does well.
Why it matters
Band width is a fast visual read on current volatility, which feeds directly into how wide a stop the instrument currently requires.
Common mistakes
- Selling every touch of the upper band during an uptrend.
- Reading a squeeze as directional. It signals expansion, not which way.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
How much and how quickly an asset’s price moves over a given period.
The average size of an instrument’s price range per period, including gaps.
The average price over a set number of periods, recalculated as each new period closes.
A period where price moves sideways in a narrow range without clear direction.
When price moves decisively beyond an established support or resistance level.