Bollinger Bands
Overview
Bollinger Bands consist of a middle band (20 SMA by default) and upper/lower bands set at 2 standard deviations from the middle. The bands expand during high volatility and contract during low volatility. The squeeze (narrow bands) often precedes a significant move, making Bollinger Bands excellent for volatility-based setups.
Key Concepts
Middle band: 20-period SMA. Upper band: 20 SMA + 2σ. Lower band: 20 SMA - 2σ. Bollinger Squeeze: bands contract to narrow width. Bollinger Expansion: bands widen after squeeze. Price walking the band: trend strength indicator. Mean reversion: price tends to return to the middle band.
Entry Signals
Bollinger Squeeze followed by breakout = momentum entry in breakout direction, Price touching lower band in uptrend = buy the dip opportunity, Upper band walk = strong uptrend (don't short), Mean reversion: short at upper band, buy at lower band (ranging markets only)
Exit Signals
Squeeze breakout: enter on break of the squeeze, target 1.5-2× the squeeze width. Mean reversion: enter at band, target middle band. Band walk: trail with the middle band. Stop: middle band for band-touch strategies.
Best Timeframes
20-period standard on all timeframes. Use with Volume for confirmation.
Pro Tips
The Bollinger Band squeeze is one of the most reliable technical patterns. But the squeeze doesn't tell you WHICH direction the breakout will occur — you need additional context (trend, momentum, volume) to determine direction.
More Topics in This Category
Chart Patterns (H&S, Wedges, Flags)
Chart patterns are geometric price formations that signal continuation or reversal. Major patterns include: Head & Shoulders (reversal), Double Top/Bottom (reversal), Bull/Bear Flags (continuation), Rising/Falling Wedges (reversal), Ascending/Descending Triangles (continuation/reversal). All are measured-move patterns with projected price targets.
Divergence Trading
Divergence occurs when price action and an indicator (RSI, MACD, CCI, OBV) move in opposite directions, signaling weakening momentum and potential reversals. Regular divergence signals reversal. Hidden divergence signals continuation. Divergence is a leading signal — it warns of momentum shifts before they appear in price.
Pivot Points Analysis
Pivot points are mathematically derived horizontal levels calculated from the previous period's high, low, and close that serve as potential support and resistance for the current period. The central pivot point acts as the primary directional bias level, while support and resistance levels above and below provide profit targets and stop placement zones. Pivot points are widely used by institutional and floor traders, creating self-fulfilling price reactions.
Moving Averages (SMA, EMA)
Moving averages smooth price data to identify trend direction and dynamic support/resistance. The Simple Moving Average (SMA) weights all periods equally; the Exponential Moving Average (EMA) gives more weight to recent prices. Key MAs: 9/20 EMA (short-term), 50 SMA/EMA (intermediate), 200 SMA (long-term). Golden/death crosses and MA ribbons are widely followed signals.