What Are Bollinger Bands? How to Read Them and What to Watch For

What are Bollinger Bands?

Bollinger Bands have three lines: a moving average in the middle, and two bands above and below it at a set number of standard deviations. The usual setting is a 20-day simple average and 2 standard deviations. They show how high or low price is relative to its own recent volatility.

What do the bands tell you?

• Band width shows volatility. When price is calm the bands narrow, when it is choppy they widen.
• Price near the upper band means price is high relative to its recent range, near the lower band the opposite. On its own that does not mean "sell" or "buy".
• A squeeze is often followed by a bigger move, but it does not tell you the direction in advance.

Common mistakes

1. Treating a touch of the band as an automatic signal: In a strong trend, price can walk along the upper band for days.
2. Relying on one indicator: Read the bands together with volume and trend information. See What is a moving average?
3. Ignoring costs: Band rules generate frequent trades. See Commissions and slippage in backtests.
4. Tuning settings to the past: Picking the band setting that looks best leads to overfitting. See the Backtesting and paper trading guide.

How it relates to other indicators

For momentum see the RSI indicator, for trend see MACD.

Remember

Bollinger Bands summarise past price swings, they do not forecast. Test a rule with costs before using real money.

This article is educational and not investment advice. Past results do not guarantee future results; trading carries a risk of loss.