Bollinger Bands

Bollinger Bands are a volatility envelope consisting of a 20-period simple moving average plus an upper and lower band set 2 standard deviations above and below it. Because the bands are built from standard deviation, they widen automatically when price swings expand and contract when the market goes quiet.

The contraction is the most traded feature. A squeeze, where band width shrinks to a multi-month low, marks a volatility compression that frequently precedes a sharp move; the bands say nothing about which direction. Touching a band is not a signal by itself either: in a strong trend, price can ride the upper band for weeks, a behavior called walking the band.

Common uses are mean-reversion entries when price pokes outside a band in a rangebound market, and breakout setups triggered off a squeeze.