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.
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.
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)
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.
20-period standard on all timeframes. Use with Volume for confirmation.
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.
Multi-timeframe analysis (MTA) uses multiple chart timeframes to build a complete picture of market conditions. The higher timeframe provides trend direction and key levels. The intermediate timeframe confirms momentum. The lower timeframe provides precise entry timing. This 'top-down' approach dramatically improves trade quality.
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.
The Moving Average Convergence Divergence (MACD) measures the relationship between two exponential moving averages (typically 12 and 26 period). The MACD line is the difference between these EMAs, and the signal line is a 9-period EMA of the MACD. The histogram shows the distance between MACD and signal lines. MACD is a hybrid trend-following and momentum indicator.
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.