JustChartsBollinger Bands Explained: Squeeze, Breakouts and Mean Reversion
Bollinger Bands are a volatility indicator made of a 20-period simple moving average with an upper and lower band two standard deviations away. The bands widen when volatility rises and narrow when it falls. A tight “squeeze” often comes before a big move, while price touching a band is not by itself a signal to buy or sell.
Key facts
- Middle band
- 20-period simple moving average
- Upper / lower band
- ± 2 standard deviations
- Created by
- John Bollinger, 1980s
- Squeeze
- very narrow bands — volatility likely to expand
- Band walk
- price hugging a band in a strong trend
How the bands are calculated
Middle = 20-period SMA · Upper = middle + 2 × standard deviation · Lower = middle − 2 × standard deviation
Standard deviation measures how spread out recent prices are, so the bands automatically adapt to volatility. Read more about the middle line in moving averages.
Three ways traders use them
1. The squeeze
When the bands contract to their narrowest in months, volatility is unusually low — and low volatility tends to be followed by high volatility. Traders watch for a breakout from the squeeze, often waiting for confirmation from volume or a close outside the range.
2. Mean reversion in ranges
In sideways markets, moves to the upper band often fade back towards the middle, and moves to the lower band often bounce. This works best when price is clearly ranging between support and resistance.
3. Band walks in trends
In strong trends, price can “walk” along the upper or lower band for many bars. Selling every touch of the upper band in an uptrend is a classic mistake.
Common mistakes
- Treating a band touch as an automatic reversal signal.
- Ignoring the trend — combine with tools like RSI or MACD.
- Assuming 95% of prices stay inside the bands — that only holds for normally distributed data, and market prices often aren’t.
Frequently asked questions
What are the standard Bollinger Band settings?
A 20-period simple moving average with bands at 2 standard deviations. Some traders use 2.5 or 3 for fewer touches.
What is a Bollinger Band squeeze?
A period when the bands are unusually narrow, showing low volatility. It often comes before a sharp move, though not in a predictable direction.
Is touching the upper band a sell signal?
Not by itself. In uptrends price often rides the upper band. It is more meaningful in ranging markets or alongside other evidence of exhaustion.
Put it into practice
Live charts, an economic calendar and trading calculators — free with a JustCharts account.
Add Bollinger Bands to a live chartThis article is for education only and is not financial advice. Trading leveraged products carries a high risk of losing money. Contract sizes, trading hours and leverage limits vary by broker and country — always check your own broker’s specifications.