Bollinger Bands
Last updated
Last updated
Bollinger Bands are a popular technical analysis tool created by John Bollinger in the 1980s. They consist of three lines plotted on a price chart:
Middle Band: a simple moving average (usually 20 periods).
Upper Band: the middle band plus two standard deviations.
Lower Band: the middle band minus two standard deviations.
These bands expand and contract based on market volatility 📈📉.
When volatility is high, the bands widen.
When volatility is low, the bands contract. This helps traders quickly understand how "active" or "quiet" the market is.
Prices usually stay within the bands — around 90-95% of the time. If the price touches or moves outside the bands, it could signal an opportunity or a warning ⚡.
Price near the upper band: Asset may be overbought (potential for a pullback).
Price near the lower band: Asset may be oversold (potential for a bounce).
Bands tightening ("squeeze"): Market may soon break out strongly in one direction 🚀.
Important: Bollinger Bands don’t predict the direction of the breakout — only that a breakout might happen.
Standard setting:
20-period simple moving average (SMA)
Bands at 2 standard deviations
You can adjust these settings based on your trading style:
Short-term traders may prefer a 10-period SMA.
Long-term traders might use a 50-period SMA.
Always test different settings to fit your market and timeframe 🔍.
Breakout Strategy: When the bands squeeze tight and the price breaks above or below, you can enter in the direction of the breakout.
Mean Reversion Strategy: If price touches the upper band and starts to fall, it might revert toward the middle band (SMA). Same for touching the lower band and bouncing up.
Tip: Always use Bollinger Bands with other indicators like RSI or MACD to confirm your trade! ✅
Assuming a price touching the band must reverse: Sometimes strong trends keep pushing along the bands.
Ignoring the bigger trend: Always trade in the direction of the broader trend when possible.
Trading during very low volatility without confirmation: False breakouts can happen.
Patience and confirmation are key when using Bollinger Bands 🧘♂️.
Bollinger Bands are a simple but powerful tool for understanding market volatility and spotting trading opportunities. They help traders time entries and exits, identify potential breakouts, and manage risk.
Always remember: no indicator is perfect on its own. Combine Bollinger Bands with good risk management and confirmation tools for the best results! 🌟
