Bollinger Bands

How Bollinger Bands is calculated

The middle band is usually a 20 period simple moving average. The upper and lower bands are placed two standard deviations of price above and below it, so they expand when price is volatile and contract when it is quiet.

How Bollinger Bands is used

• →Read a squeeze, when the bands pinch tight, as low volatility that often precedes a larger move.
• →Note that price tends to spend most of its time between the bands and revert toward the middle.
• →In a strong trend, price can ride the upper or lower band rather than reversing off it.
• →Use band touches with confirmation, not as standalone buy or sell signals.

Common mistakes

• ✕Automatically shorting a touch of the upper band in a strong uptrend.
• ✕Treating a squeeze as a direction signal when it only signals a coming expansion.