Trading term

What is Bollinger Bands?

Bollinger Bands wrap a price chart in three lines: a middle moving average with an upper and lower band set two standard deviations away. The bands widen when volatility rises and squeeze together when it falls, framing whether price is relatively high or low.

Created by John Bollinger, the indicator plots a moving average (usually 20 periods) as the middle line, then draws an upper and lower band a set number of standard deviations — usually two — above and below it. Because standard deviation measures volatility, the bands breathe: they balloon apart in wild markets and pinch together in calm ones. Roughly 90% of price action stays inside the bands, so a tag of the upper or lower band marks a statistically stretched move.

Two classic reads. The 'squeeze' — bands contracting to their tightest in months — signals volatility has collapsed and often precedes a big expansion move, though it doesn't say which way. And band tags: price riding the upper band shows strong momentum, not necessarily a sell. Bollinger himself warned that a band touch is not a signal on its own — it's context, best paired with other tools.

Bollinger Bands: squeeze, then expansion
SqueezeBands expand →Middle = 20-period average · bands = ±2 std dev

The bands (±2 standard deviations around a moving average) pinch tight during the quiet consolidation — a squeeze — then flare open as price breaks out and volatility expands.

For example

A stock's Bollinger Bands pinch to their narrowest in a year — a squeeze — then price closes above the upper band and the bands flare open, kicking off a fast rally as volatility expands.

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Why it matters to you

Bollinger Bands turn 'is this move stretched?' and 'is volatility about to pop?' into something you can see at a glance. The squeeze in particular is prized because it flags coiled-up energy before the market moves — a rare heads-up that a quiet market is about to get loud.

⚠ A band tag isn't a sell signal

The most common mistake is automatically selling when price touches the upper band or buying the lower one. In a strong trend, price can 'walk the band' — riding the upper band higher for a long stretch. A band tag means stretched, not reversing. Treat it as context, not a trigger.

Frequently asked questions

What do Bollinger Bands measure?

They measure volatility and relative price level. The middle line is a moving average; the upper and lower bands sit a set number of standard deviations (usually two) away, so they widen when volatility rises and narrow when it falls. Price near the upper band is relatively high; near the lower band, relatively low.

What is a Bollinger Band squeeze?

A squeeze is when the bands contract to an unusually narrow width, showing volatility has dropped sharply. It often precedes a strong expansion move — a breakout — though the squeeze itself doesn't reveal the direction, only that a bigger move is likely brewing.

Should I sell when price touches the upper Bollinger Band?

Not automatically. A touch of the upper band means price is stretched, but in a strong uptrend price can 'walk the band' higher for a long time. Bollinger's own advice is to treat band tags as context alongside other indicators, not as standalone buy or sell signals.

What are the best Bollinger Band settings?

The default is a 20-period moving average with bands at two standard deviations, as John Bollinger designed. Shorter periods react faster with more signals; wider deviations capture fewer, more extreme tags. Most traders start with 20, 2 and adjust only with good reason.

Related terms

Ascending triangleAn ascending triangle is a bullish continuation pattern: a flat horizontal resistance line on top, with a rising trendline of higher lows beneath it. As the higher lows squeeze price against the ceiling, pressure builds — and it usually resolves with a breakout up through the resistance.ATR (Average True Range)ATR (Average True Range) measures how much a security typically moves in a period — its volatility — as an average of recent trading ranges. It doesn't say which direction price is heading, only how far it tends to travel, which makes it a core tool for stop-losses and position size.BreakdownA breakdown is when price falls decisively through a support level it had been holding above — the bearish mirror of a breakout. It signals sellers have overwhelmed the buyers defending support, and often triggers a fast move lower as stops and new sellers pile in.BreakevenBreakeven is the price at which a trade shows neither a profit nor a loss — your entry price plus any costs. 'Moving your stop to breakeven' means raising a stop-loss to your entry once the trade moves in your favour, so a winner can no longer turn into a loser.
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