What the bands are
The middle line is usually a 20-period simple moving average. The outer bands sit two standard deviations of the last twenty closes above and below it. Because standard deviation grows when candles get bigger, the bands widen in volatile markets and squeeze together in quiet ones. The bands are drawn by the market’s own recent behaviour, not by a fixed distance.
Touching a band is not a signal
Statistically, price is outside the bands only a small share of the time, which is where the idea of selling the upper band comes from. But in a strong move price walks along the upper band for candle after candle, and each touch punished whoever shorted it. A band touch says the move is large relative to recent moves. That is all it says.
The squeeze
When the bands narrow, recent candles have been small. Quiet periods are often followed by loud ones, so a squeeze is a reasonable warning that a bigger move may be coming. It gives no direction at all. Anyone who tells you a squeeze is bullish is adding something the calculation does not contain.
Where mean reversion applies
In a range, price leaving the band and coming back is a real and repeatable pattern, and the middle band is a sensible target. In a trend, the same trade is standing in front of it. Deciding which market you are in has to happen before the bands are read, not after.
Paired with RSI
A band touch says price is far from its average. An RSI reading says whether the push there was strong or tired. Together they are two different measurements agreeing or disagreeing, which is more information than either alone — and still not a reason to skip a stop.
In short
| Middle band | 20-period simple moving average |
|---|---|
| Outer bands | Two standard deviations away |
| Wide bands | Recent candles have been large |
| Squeeze | Recent candles have been small — no direction |
| Band touch | Far from average; not a signal |
Common questions
Should I sell when price touches the upper band?
Only if you have already decided the market is ranging. In a trend price rides the upper band, and selling each touch is the classic way to lose money with this indicator.
What does a Bollinger squeeze predict?
That volatility is low and may rise. It says nothing about direction, and a squeeze can resolve either way or simply stay quiet for longer.
What settings should I use?
Twenty periods and two standard deviations is the standard and the one most people are looking at. Changing it until the past looks good is fitting.
Trading forex and CFDs on margin carries a high level of risk. Most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade.