Blog / Technical
Bollinger Bands: Squeeze, Walk the Band and Mean Reversion
Bollinger Bands measure volatility around a moving average. Learn the squeeze, band walks and reversion setups.
How they are built
A 20-period moving average sits in the middle with an upper and lower band at two standard deviations. The bands widen when volatility rises and narrow when it falls.
The squeeze
When the bands are unusually narrow, volatility is low and a larger move often follows. The bands do not show direction, so wait for a candle to close outside them in one direction and trade with the break.
Walking the band
In strong trends price hugs the upper or lower band. A close outside the band is then a sign of strength, not a reversal. Selling because price touched the upper band in an uptrend is a common mistake.
Mean reversion
In ranges, price tends to return from the band to the middle line. Wait for a rejection candle at the band, target the middle and use a stop beyond the recent extreme. Confirm that the market is actually ranging first.
Example: a squeeze breakout
The bands on a 4-hour chart contract to their narrowest in three weeks. A candle then closes above the upper band on above-average volume. The trader buys, puts the stop under the middle band and trails it as price walks along the upper band.
If the next candle closes back inside the bands, the breakout may be false and the trader exits near break-even.
Settings and tests
The standard setting is a 20-period average with 2 standard deviations. Wider bands (2.5) produce fewer touches and cleaner signals; narrower ones produce more noise. Backtest the setting on your market, since a rule that works on a calm currency pair may fail badly on a volatile crypto coin.
Pairing it with other tools
Bands pair well with RSI for reversions and with a longer moving average as a trend filter. A touch of the lower band while above the 200-day average is a very different signal from the same touch below it.
Key takeaways
- Bands show volatility, not direction.
- Squeezes precede bigger moves.
- In trends price can walk the band.
- Reversion works in ranges.
Related
Educational content, not financial advice.