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.
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