Bollinger Bands
Volatility bands around a moving average: squeeze means calm, expansion means motion.
Bollinger Bands frame price with volatility bands around a moving average. Squeezes precede breakouts; tags of the bands show stretched prices, not automatic reversals.
Bollinger Bands plot two standard deviations above and below a moving average, usually 20-period. Bands widen in volatility and squeeze in calm, so traders read the width for regime and the edges for stretched prices. Price walking the upper band signals trend strength, not an automatic short.
How It Works
- Middle line is typically a 20-period average
- Outer bands sit two standard deviations away
- Squeeze patterns flag coming expansion
Trading Tips
Trade squeezes for direction, not tags for reversals
Confirm band signals with price structure
Walking the band means trend: do not fade it early
Bollinger Bands Example
Say EUR/USD squeezes into a 40-pip Bollinger range for two weeks, the tightest in months. The break expands bands violently and runs 200 pips. The squeeze predicted the energy; direction came from the break.
How Traders Use Bollinger Bands
Scan for squeezes across pairs to find coiled markets, then trade the expansion break with stops inside. Avoid fading band tags in trends: strong trends live outside the bands for weeks.
Related Terms
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