What is Bollinger Bands?
Bollinger Bands expand and contract with recent volatility. They provide a visual representation of how far price is trading from its recent statistical average.
What does it measure?
Price dispersion around a moving average using standard deviation.
How is it calculated?
The common setup uses a 20-period SMA with upper and lower bands placed two standard deviations above and below the average.
Common interpretation.
- Expanding bands indicate rising recent volatility.
- Contracting bands indicate falling recent volatility.
- Touching an outer band does not by itself indicate that price must reverse.
- Persistent movement near one band can occur during strong trends.
How traders use it for market context.
- Bollinger Bands can help distinguish quiet consolidation from expanding intraday volatility.
- They can be combined with session levels and market structure to provide context.