What Bollinger Bands Really Show

Bollinger Bands plot a moving average (typically 20) with upper and lower bands at standard deviations from that mean. Tight bands signal low volatility (coiling), while widening bands signal expansion (movement is underway). The bands don’t predict direction — they frame context for potential shifts.

Price with 20-period middle band and ±2σ outer bands; annotations for squeeze/expansion.

Three Core Use Cases

• Squeeze Breakout: Bands pinch tightly; trade the break with volume confirmation.
• Mean Reversion: In ranges, fade moves from outer band back to the middle.
• Trend Riding: In strong trends, pullbacks to middle band can offer entries.

The Squeeze: A Process to Trade It

• Identify: BandWidth or visual pinch over several bars.
• Trigger: Break of consolidation high/low with volume surge.
• Risk: Stop beyond the opposite side of the range or ATR-based.
• Targets: Measured move from range height; partials at 1.5R/2R.

Case study: Bollinger Band squeeze → breakout → measured move target.

Mean Reversion vs. Trend: Avoid the Trap

Many traders fade outer-band touches in strong trends and get steamrolled. Use a regime filter (higher timeframe trend or MA alignment) to decide whether to fade back to the middle band or to buy pullbacks into it.

Practical Filters

• ATR Above Baseline → prefer breakout plays.
• Price Above 50/200 MAs → prefer buying dip to middle band.
• Range Structure + Low Volume → prefer fading toward mean.

Checklist: Before You Trade a Band Touch

• What’s the higher timeframe bias?
• Are bands expanding or contracting?
• Is volume confirming the trigger?
• Where is the clean invalidation (stop) and 2R target?