Bollinger Bands

What it measures

The middle band is commonly a 20-period simple moving average. The outer bands are often placed two standard deviations above and below it. These are familiar defaults; different instruments and settings can behave differently.

A short history

John Bollinger developed Bollinger Bands in the early 1980s. The design adapted to changing volatility, unlike fixed-percentage bands that stay the same distance from a moving average. John Bollinger’s official site

How traders use it

• See whether volatility is expanding or contracting.
• Compare price with its recent range rather than interpreting one price level in isolation.
• Study a period of narrow bands as a possible sign that volatility has become quiet; expansion can follow, but direction is unknown.

A squeeze-and-confirmation study

This is a study framework for learning and backtesting, not a trade recommendation.

1. Look for an unusually narrow band width compared with that instrument’s own recent history. This is sometimes called a squeeze.
2. Do not guess the direction. Wait for a clear close outside the recent range and check whether broader price structure supports the move.
3. Define what would count as a failed move, account for volatility and set risk before considering any trade.

Common mistakes and limits

• Price can walk along an outer band during a strong trend.
• A narrow band does not say whether the next move will be up or down.
• Standard-deviation bands describe recent data; they do not mark guaranteed support or resistance.