Bollinger Bands
A moving average with volatility bands plotted a set number of standard deviations above and below.
Also called: bands · bollinger
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.
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.