Bollinger Bands place an upper and lower band around a moving average. The distance between the bands changes with recent volatility, so the bands widen when price movement expands and narrow when movement contracts.
Bollinger Band squeeze and expansion
Bands narrow when recent volatility contracts and widen when price movement expands.
The three lines
The middle line is commonly a 20-period simple moving average. The upper and lower bands are often placed two standard deviations above and below it.
- Middle band: recent average price.
- Upper band: average plus a volatility distance.
- Lower band: average minus a volatility distance.
What a squeeze means
A squeeze occurs when the bands narrow. It signals lower recent volatility, not the direction of the next move. Price can break upward or downward after a squeeze.
Why touching a band is not enough
Price can move along the upper band during a strong uptrend or along the lower band during a strong downtrend. A band touch should not automatically trigger a reversal trade.
Rules traders test
Common tests include breakout entries after a squeeze, mean-reversion entries toward the middle band, or trend continuation while price stays near one band. Each approach behaves differently and needs separate risk rules.
Frequently asked questions
What are the default Bollinger Band settings?
A common default is a 20-period moving average with bands two standard deviations away.
Does an upper-band touch mean overbought?
Not necessarily. It may reflect strong trend momentum.
Can Bollinger Bands predict breakout direction?
No. Narrow bands show compression, but they do not determine whether price will break up or down.