Bollinger Bands draw a moving average (usually 20) with a band above and below, set 2 standard deviations away. When volatility rises, the bands widen. When it falls, they squeeze.
Two classic uses
- The bounce: in ranges, price tends to bounce between the outer bands.
- The squeeze: when bands get very tight, a big move is often coming. Trade the breakout direction.
Wick says
The squeeze is like a coiled spring. The tighter it gets, the bigger the jump. Just don't guess the direction too early!
Rookie mistake
Selling every touch of the upper band. In strong trends, price can "walk the band" for ages.
Key takeaways
- Bands = 20 MA ± 2 standard deviations.
- Wide bands = high volatility; narrow = low.
- Squeezes often lead to breakouts.