What Is Bollinger Bands?
Bollinger Bands, developed by John Bollinger, consist of a moving average (typically 20-period SMA) flanked by two standard-deviation bands plotted above and below. The standard configuration uses 2 standard deviations, capturing roughly 95% of price action when returns are normally distributed.
When the bands narrow ("squeeze"), volatility is contracting — often a precursor to a sharp directional move. When they expand widely, volatility is elevated and a reversal toward the mean is more likely. Touching the upper band isn't itself a sell signal — price often "walks the band" in strong trends.
Bollinger Bands are best used as a volatility filter rather than a direct entry signal. Bollinger himself recommended pairing them with another non-correlated indicator (like RSI) to confirm direction. Bollinger %b and Bollinger Bandwidth are derived measures that quantify the same information in single-line form.
Related terms
- ATR (Average True Range) — Volatility indicator measuring the average range of price movement per candle.
- Volatility — A statistical measure of how much an asset's price varies over a period.
- Moving Average — A line plotted on a chart showing the average price over a chosen lookback period.