Bollinger Bands Trading Guide
Master Bollinger Bands - squeeze setups, breakout strategies, and mean reversion techniques
What are Bollinger Bands?
Bollinger Bands are a volatility indicator developed by John Bollinger in the 1980s. They consist of three lines: a middle band (simple moving average) and two outer bands that adjust based on price volatility.
The bands expand when volatility increases and contract when volatility decreases. This dynamic nature makes them excellent for identifying low-volatility squeeze setups that precede big moves, as well as overbought/oversold conditions.
Unlike fixed indicators, Bollinger Bands adapt to market conditions automatically, making them useful across different markets and timeframes.
Bollinger Band Components
Middle Band
The middle band is typically a 20-period Simple Moving Average (SMA). It acts as the baseline and shows the average price over the lookback period.
Often used as a target for mean reversion trades and as dynamic support/resistance.
Upper Band
The upper band is set at 2 standard deviations above the middle band. Approximately 95% of price action occurs within the bands under normal conditions.
Price touching or exceeding upper band suggests overbought conditions or strong uptrend.
Lower Band
The lower band is set at 2 standard deviations below the middle band, creating a symmetric envelope around price.
Price touching or exceeding lower band suggests oversold conditions or strong downtrend.
How to Read Bollinger Bands
Band Width
Wide Bands: High volatility. Big price swings expected. Trends are likely active.
Narrow Bands: Low volatility. Small price range. Often precedes breakout.
Extreme Narrow (Squeeze): Very low volatility. High probability of significant move coming.
Price Position
At Upper Band: Strong buying pressure. Overbought or strong uptrend.
At Lower Band: Strong selling pressure. Oversold or strong downtrend.
At Middle Band: Fair value area. Often acts as support/resistance.
Outside Bands: Extreme conditions. Potential exhaustion or powerful trend.
Band Walk
What is it: Price consistently touches or rides along upper or lower band.
Upper Band Walk: Very strong uptrend. Don't fade - trend is powerful.
Lower Band Walk: Very strong downtrend. Don't try to catch the falling knife.
Double Bottom/Top
W-Bottom: Price touches lower band twice, second touch holds higher - bullish reversal.
M-Top: Price touches upper band twice, second touch fails lower - bearish reversal.
These patterns signal potential trend changes.
The Bollinger Band Squeeze
The Most Powerful Bollinger Band Setup
The squeeze is a period of extremely low volatility where the bands contract to their narrowest point. This consolidation typically precedes a significant expansion and directional move.
How to Identify a Squeeze
1. Bands contract - Upper and lower bands move closer together
2. Low volatility - Small candles, tight price range
3. Decreasing volume - Often accompanies the squeeze
4. Compression period - Market is coiling for next move
How to Trade the Squeeze
Bollinger Band Trading Strategies
Mean Reversion Strategy
Buy at lower band, sell at upper band in ranging markets. Price tends to revert to the middle band (mean).
When to Use
- • Sideways, non-trending markets
- • Price bouncing between bands
- • No strong directional momentum
- • Support/resistance holding
Entry Rules
- • Buy when price touches lower band
- • Sell when price touches upper band
- • Target: middle band or opposite band
- • Stop: just outside entry band
Breakout Strategy
Trade in the direction of band breakouts when price closes outside the bands with momentum.
Bullish Breakout
- • Price closes above upper band
- • Volume increases on breakout
- • Bands expanding upward
- • Enter pullback to middle band
Bearish Breakout
- • Price closes below lower band
- • Volume increases on breakdown
- • Bands expanding downward
- • Enter rally to middle band
W-Bottom & M-Top Strategy
Trade reversal patterns when price tests the bands twice with specific characteristics.
W-Bottom (Bullish)
- 1. First low touches lower band
- 2. Rally to middle band (pullback)
- 3. Second low holds above first low
- 4. Second low above lower band = bullish
- 5. Enter on break above middle band
M-Top (Bearish)
- 1. First high touches upper band
- 2. Dip to middle band (pullback)
- 3. Second high fails below first high
- 4. Second high below upper band = bearish
- 5. Enter on break below middle band
Bollinger Band Settings
| Trading Style | Period | Std Dev | Timeframe | Characteristics |
|---|---|---|---|---|
| Standard | 20 | 2 | Any | Default, works for most situations |
| Day Trading | 10 | 2 | 5m, 15m | Faster response, more signals |
| Scalping | 10 | 1.5 | 1m, 5m | Very tight bands, frequent touches |
| Swing Trading | 50 | 2.5 | 4H, Daily | Smoother, wider bands, fewer signals |
| Breakout Specialist | 20 | 1.5 | Any | Tighter bands = more breakouts to trade |
Lower standard deviation = tighter bands = more signals. Higher = wider bands = fewer signals. Test on your market.
Combining Bollinger Bands with Other Indicators
BB + RSI
Buy when price touches lower band AND RSI < 30. Sell when price touches upper band AND RSI > 70. Confirms extreme conditions.
BB + MACD
Use MACD to confirm squeeze breakouts. Enter when price breaks band and MACD crosses in same direction.
BB + Volume
Breakouts should have increasing volume. Band touches with low volume = weak signal. High volume = strong signal.
BB + Moving Averages
Add 200 EMA to filter. Only trade band signals in direction of 200 EMA. Improves win rate significantly.
BB + Support/Resistance
Strongest signals occur when bands align with key support/resistance. Confluence increases probability.
BB + Fibonacci
Look for band touches at Fibonacci levels. 61.8% retracement at lower band = high probability long setup.
Common Bollinger Band Mistakes
Avoid these errors when trading Bollinger Bands:
Pro Tips for Bollinger Band Trading
Frequently Asked Questions
What are Bollinger Bands?
Bollinger Bands are a volatility indicator consisting of a middle band (20-period SMA) and two outer bands set at 2 standard deviations above and below. They expand in volatile markets and contract in quiet periods.
What is a Bollinger Band squeeze?
A squeeze occurs when Bollinger Bands contract to their narrowest point, indicating very low volatility. This often precedes a significant price move. Trade the direction of the breakout from the squeeze.
How do you trade Bollinger Bands?
Common strategies: 1) Buy at lower band, sell at upper band in ranges. 2) Trade breakouts when price closes outside bands. 3) Enter after squeeze when bands expand with momentum. Always confirm with trend and other indicators.
What are the best Bollinger Band settings?
Default 20, 2 works well for most trading (20-period SMA, 2 standard deviations). Day traders may use 10, 2 for faster signals. Swing traders may use 50, 2.5 for fewer signals. Test on your timeframe.
Can you use Bollinger Bands for day trading?
Yes, Bollinger Bands work well for day trading. Use on 5m or 15m charts with default settings or faster (10, 2). Watch for squeeze setups in the morning and fade extreme moves to the bands. Combine with volume for confirmation.
Information accurate as of December 2025. Verify current rates and terms with providers directly.
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Risk Disclosure: Trading involves substantial risk of loss and is not suitable for all investors. This content is for educational purposes only and does not constitute financial advice.
Last updated: December 2025