A volatility indicator consisting of a moving average flanked by two standard-deviation bands that expand during high volatility and contract during low volatility.
Created by John Bollinger, the indicator plots a 20-period simple moving average in the centre with upper and lower bands set two standard deviations away. Because standard deviation is a statistical measure of dispersion, the bands automatically widen when price is volatile and squeeze when it is range-bound.
The Bollinger Squeeze - a prolonged period of narrow bands - often precedes a significant breakout in either direction. Traders watch for price closing outside the bands as a momentum signal, but note that price can 'walk the band' during strong trends without reversing.
Bollinger Bands are particularly useful paired with RSI: a tag of the upper band with an overbought RSI reading strengthens a short bias; a tag of the lower band with oversold RSI strengthens a long bias.
Find a Broker