Construction
- Middle band: 20-period SMA
- Upper band: SMA + 2 standard deviations
- Lower band: SMA − 2 standard deviations
What They Show
Statistically, prices sit within ±2σ of the mean about 95% of the time. The bands adapt to volatility — narrow in calm markets, wide in volatile ones.
Common Setups
- **Squeeze**: bands contract to a narrow range → often precedes a breakout
- **Walk the band**: strong trends "hug" the upper or lower band
- **Reversion to the mean**: extreme touches in a range often revert to the middle band
Combining With Other Tools
Use RSI or MACD to distinguish squeeze breakouts from continuation. Never trade Bollinger touches in strong trends as pure reversal signals.
Key Takeaways
- Bollinger Bands measure volatility around a moving average.
- Squeezes precede expansion; walks confirm trend.
- Use in combination with structure and momentum tools.