Master Bollinger Bands. Learn squeeze patterns, band walks, and volatility-based trading strategies used by professional traders.
About 8 minutes · One knowledge check
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Bollinger Bands are a volatility indicator developed by John Bollinger in the 1980s. They consist of three lines plotted on a price chart: a middle band (typically a 20-period Simple Moving Average), an upper band (middle band + 2 standard deviations), and a lower band (middle band – 2 standard deviations). The bands automatically widen when volatility increases and narrow when volatility decreases.
This adaptive nature makes Bollinger Bands one of the most useful indicators for understanding whether a market is in a high-volatility or low-volatility state, and for identifying potential breakouts.
By default, price closes inside the bands approximately 95% of the time. When price touches or pushes through the upper band, the asset may be overbought in the short term. When price touches or pushes through the lower band, it may be oversold. However, in strong trends, price can "walk" along the upper or lower band for extended periods — so touching a band alone is not a reversal signal.
The bandwidth — the distance between the upper and lower bands — is key to understanding volatility cycles. Tight bands mean low volatility. Wide bands mean high volatility. Markets cycle between these two states, and periods of very low volatility (tight bands) often precede explosive price moves.
The squeeze is one of the most powerful Bollinger Band setups. When the bands contract to their tightest in months, a significant breakout is often imminent. The squeeze itself does not tell you the direction — for that, you use additional indicators or watch which way price breaks. When a squeeze resolves, the initial breakout direction often carries significant momentum.
Mean Reversion (Range Markets): In sideways markets, price tends to oscillate between the upper and lower bands. Buy near the lower band with a bullish confirmation signal. Sell near the upper band with a bearish confirmation. Target the middle band (20 SMA) as a minimum profit target.
Squeeze Breakout: Identify a period of band compression (squeeze). Wait for price to break decisively above or below the bands with volume. Enter in the breakout direction with a stop on the opposite side of the middle band.
Band Walk: In strong trends, price consistently "walks" the upper (or lower) band. Stay in the trend trade as long as price keeps closing above the middle band. Exit when price closes back below the middle band.
Educational content only. Not financial advice. Bollinger Bands are one of many tools — use them as part of a complete strategy.
