Bollinger Bands
Bollinger Bands are an indicator made of a moving average (usually the 20 SMA) and two lines above and below it set two standard deviations away. They widen and narrow with volatility.
How it works
The middle line is the 20 SMA. The upper band = SMA + 2 standard deviations, the lower band = SMA − 2 standard deviations. Standard deviation measures how spread out prices are around the average, so the bands squeeze in a quiet market and spread apart during sharp moves.
A tight narrowing of the bands (a squeeze) signals a lull that is often followed by a strong move, but the squeeze does not tell you the direction. In a range, a touch of the upper band can mark a selling zone and a touch of the lower band a buying zone.
In a strong trend price can walk the band for a long time, touching it again and again. That is a sign of strength, not a reversal signal. Most closes sit inside the bands, but moves outside them happen regularly.
ETH's 20 SMA is $3,000 and the standard deviation is $75. The upper band is $3,150, the lower $2,850. A week later the deviation drops to $30: the bands narrow to $2,940–$3,060. This squeeze says the market has gone quiet and may break out of its range soon.
The mistake is shorting every touch of the upper band as overbought. In a trend price can hug the band for weeks and those shorts get stopped out one after another. First decide whether the market is ranging or trending, and use the bands as range edges only in a range.
Questions and answers
What are Bollinger Bands in simple terms?
They are a channel around the average price whose width depends on volatility. A narrow channel means a calm market, a wide one means price is jumping around.
What is a Bollinger Band squeeze?
It is when the bands narrow sharply because volatility is low. A strong move often follows, but the bands do not say which way.
What are the standard Bollinger Band settings?
A 20 period and a multiplier of 2 standard deviations. They are the most widely used, and most results are compared against them.
Related terms
Read next
The classic scenario: level, breakout, return, and a trade plan with entry, stop and target.
Read →How to read a candlestick chart: Japanese candles for beginnersCandlestick charts are the most popular way to look at price. Here is how one candle works, how to read them in a row, and the…
Read →BOS (break of structure)A break of structure (BOS) is price breaking the last significant high in an uptrend or the last significant low in a…
Updated: 2026-10-19