What Are Bollinger Bands?
Bollinger Bands consist of three lines plotted on a price chart: a middle band (20-period Simple Moving Average), an upper band (middle band + 2 standard deviations), and a lower band (middle band - 2 standard deviations). The bands expand when volatility increases and contract when volatility decreases.
The Bollinger Squeeze
When the bands contract tightly (a squeeze), it signals low volatility and indicates that a significant price move is imminent. The squeeze does not tell you which direction — it tells you to be ready. When the bands suddenly expand after a squeeze, the direction of the breakout typically defines the next major move.
Trading Bollinger Bands
Band Touches: In a ranging market, price touching the upper band suggests overbought conditions. Touching the lower band suggests oversold. Combined with RSI, band touches at overbought/oversold RSI levels create strong reversal signals.
Squeeze Breakout: When bands squeeze, place alerts. When price breaks out of the squeeze with volume, enter in the breakout direction. This is one of the most profitable setups in crypto trading. Use MACD to confirm the breakout direction.
Walking the Bands: In a strong trend, price can ride along the upper or lower band for extended periods. This is NOT a reversal signal — it indicates extreme momentum. Do not short just because price is at the upper band in a strong uptrend.
Bollinger Bands strategies are covered in depth in our indicator courses.