What Are Bollinger Bands?
💡 Definition
Bollinger Bands consist of a middle band (usually a 20-period Simple Moving Average), and an upper and lower band placed K standard deviations (commonly 2) above and below the SMA. Bands expand when volatility rises and contract when it falls, creating context for breakouts, mean reversion, and trend continuation.
The magic isn’t the lines themselves—it’s how price behaves relative to them. Squeezes hint at upcoming expansion, “walking the band” reflects strong trends, and tags at extremes often revert toward the middle band.
Visual Representation
Bands Expand/Contract + Squeeze → Expansion
Contracting bands (squeeze) often precede a directional expansion. Bands widen as volatility increases.
Components & Core Signals
📏 Middle Band (SMA)
Acts like a dynamic mean. Price frequently reverts to it after touching an outer band.
🔼 Upper / 🔽 Lower Bands
Two standard deviations above/below the SMA. Upper band tags suggest strength; lower band tags suggest weakness.
🧨 Squeeze
Significant band contraction. Watch for break + close outside a band with volume to confirm expansion.
🚶 “Walking the Band”
Strong trends can ride the outer band. Tags aren’t immediate reversal signals; they show persistence.
↩️ Mean Reversion Tags
Touches/wicks beyond an outer band often revert toward the middle band—best in ranging markets.
%B & Bandwidth
%B locates price within bands (0=lower, 1=upper). Bandwidth measures band width → squeeze detection.
Why Bollinger Bands Work
- Volatility Lens: Bands scale with standard deviation—adapting to market conditions.
- Mean Reversion Logic: Extremes relative to the mean tend to pull back toward it in balance.
- Regime Context: Squeeze → expansion; wide bands often transition to range-bound behavior.
- Crowd Behavior: Breakouts beyond compressed bands capture pent-up order flow.
How to Trade with Bollinger Bands
Practical Playbook
1. Identify Regime: Is the market trending or ranging? Choose continuation or mean-reversion tactics accordingly.
2. Squeeze Breakout: Wait for band contraction; enter on break + close outside the band with volume. Place stops beyond the opposite side or last swing.
3. Mean Reversion: Fade extreme tags back to the middle band—only in balanced/range conditions and with confirmation (e.g., rejection wicks).
4. Trend Pullback: In uptrends, buy pullbacks near the middle band; in downtrends, sell bounces to it.
5. Use %B/Bandwidth: %B near 1 with rising Bandwidth = expansion; %B mean-reverting with low Bandwidth = range.
6. Confluence: Combine with S/R, trendlines, volume, and momentum (e.g., RSI/MACD) for higher probability.
Common Mistakes
⚠️ Avoid These Errors
- Treating outer bands as automatic reversal levels during strong trends.
- Fading every band touch without considering regime or confirmation.
- Ignoring volume on squeeze breakouts.
- Not adjusting expectations across timeframes (HTF context trumps LTF noise).
- Over-optimizing period/STD settings to past data (curve fitting).
Advanced Concepts & Variations
📊 %B & Bandwidth Signals
Use %B crossovers (e.g., 0.5 line) and Bandwidth squeezes to systematize entries/exits.
🧰 Keltner Squeeze
Bollinger Bands inside Keltner Channels = powerful compression filter; breakout beyond Keltner often runs.
⚙️ Parameters
Defaults (20, 2) are broadly watched. Faster markets: 20, 2.5 or 14, 2; slower markets: 20–50 SMA with 2 std.
🧭 Multi-Timeframe Bands
Trade entries on LTF when HTF bands show squeeze/expansion or trend pullback to the middle band.
The Bottom Line
Bollinger Bands turn volatility into structure. Use squeezes to anticipate expansion, outer tags for mean reversion in ranges, and the middle band for trend pullbacks. Add confluence, respect regime, and define risk—then let volatility do the heavy lifting.