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Indicator

Bollinger Bands

Use volatility-adjusted bands to identify regime shifts, trend strength, and structural turning points — not simple reversal signals.

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Key Takeaways

Three components: a central 20-period moving average, an upper band at plus 2 standard deviations, and a lower band at minus 2 standard deviations.
Bands expand in high volatility and contract in low volatility.
Used to identify volatility regimes, trend strength through band walking, and mean reversion setups in range conditions.
Not used as a simple overbought or oversold tool.
Band expansion signals volatility breakout.

What It Measures

Three components: a central 20-period moving average, an upper band at plus 2 standard deviations, and a lower band at minus 2 standard deviations.
Bands expand in high volatility and contract in low volatility.

Institutional Use

Used to identify volatility regimes, trend strength through band walking, and mean reversion setups in range conditions.
Not used as a simple overbought or oversold tool.

Key Signals

Band expansion signals volatility breakout.
Band contraction signals compression before expansion.
Band walking means price riding the upper or lower band in a strong trend.
Mean reversion applies when price oscillates between bands in range conditions.

Trading Playbook

Breakout setup: enter on band expansion after squeeze.
Trend continuation: buy pullbacks to the mean in uptrend.
Mean reversion: fade band touches only in confirmed range conditions.
Exit when price crosses back through the 20-period mean.

When Not to Trade

Do not fade band touches in trending markets.
Avoid mean reversion setups when ATR is expanding rapidly.