Guide · Markets
What Are Bollinger Bands? Measuring Volatility Around a Moving Average
Bollinger Bands wrap a price chart in a volatility-adjusted envelope — widening when markets get choppy, tightening when they calm down. Here's how to read them.
A Bollinger Band consists of three lines plotted over a price chart: a simple moving average (typically 20-day) in the middle, and an upper and lower band set a fixed number of standard deviations (typically 2) away from that average. Because standard deviation is a direct measure of how much price has been moving around, the bands themselves widen automatically during volatile stretches and narrow during calm ones — the indicator adapts to the market's current behavior rather than using a fixed width.
Price touching or pushing outside a band doesn't automatically mean "overbought" or "oversold" in a reversal sense — in a strong trend, price can ride along the upper or lower band for an extended stretch, and treating every touch as a reversal signal is one of the more common ways this indicator gets misread by beginners.
What the bands are more reliably useful for is spotting a "squeeze" — a period where the bands compress tightly together, signaling unusually low volatility. Historically, low-volatility squeezes tend to precede a sharp expansion in either direction, though the indicator itself gives no clue which direction that breakout will take, only that one is statistically more likely to be building.
Reading volatility contraction and expansion, rather than treating band touches as buy/sell signals on their own, is a distinction worth practicing on Trade2Spike's charts across a few different assets before relying on it with real capital.