Trading glossary
Bollinger Bands are a volatility indicator that plots a moving average with upper and lower bands set a number of standard deviations away from it.
Bollinger Bands are a technical indicator developed by John Bollinger that plots three lines on a price chart. The middle line is a simple moving average, and the outer two are placed a chosen number of standard deviations above and below it. Because standard deviation measures how far price spreads from its average, the bands widen and narrow as market volatility changes.
The default settings use a 20-period moving average with bands set two standard deviations away. When volatility rises, the bands expand; when the market is quiet, they contract in what traders call a squeeze. This adaptive behavior is what makes the tool distinct from fixed-width channels, since the bands respond directly to recent price activity.
Traders often observe where price sits relative to the bands. Touching or moving outside a band is not automatically a buy or sell signal, since price can ride along a band during a strong trend. Many analysts pair the bands with other indicators to gauge context. The tool describes volatility and relative position, not future direction, and offers no guarantee of a reversal.
The outer bands sit a set number of standard deviations from the middle moving average, so they reflect how far price has recently strayed from its average. Wider bands indicate higher volatility and narrower bands indicate lower volatility.
Not on its own. Price can stay near or above a band throughout a strong trend, so a band touch alone is not a reliable signal. Traders usually combine the bands with other tools for context.