Bollinger bands

BOLLstudied

A moving average with two bands plotted a set number of standard deviations above and below it, widening in volatile markets and narrowing in quiet ones. Price near the upper band is often read as overbought, near the lower as oversold.

What the numbers mean

20, 2 deviations

Twenty is the moving-average period at the centre; 2 is how many standard deviations of price the outer bands sit from it. Because deviation is recalculated each bar, the bands widen automatically in volatile conditions and squeeze in quiet ones. Shorter periods usually pair with a smaller multiplier (10 and 1.9), longer ones with a larger (50 and 2.1).

20 — the SMA at the centre, about one trading month
2 deviations — statistically about 95% of bars fall inside; touches should be uncommon
10, 1.9 — a faster setting for short-term trading
50, 2.1 — a slower setting for position work
Bandwidth — the distance between the bands as a percentage of the middle line; this is what a squeeze measures

How it is used

Used to judge whether price is stretched relative to its own recent volatility, and to spot the squeeze — a contraction to unusually narrow width that often precedes a large move, direction unknown.

Bands squeezing to an unusually narrow width → a large move is building, direction unknown
Price walking the upper band → strong trend, not a sell signal
A close outside a band followed by a close back inside → a common mean-reversion trigger
The middle 20 SMA → the natural target for a move back from either band

How it relates to everything else

Bollinger Bands are the standard deviation member of the band family. Because width adapts automatically, the bands are as much a volatility instrument as a price one — which is why the squeeze setup pairs them with Keltner channels: Bollinger Bands contracting inside the Keltner channel means volatility has compressed on both measures at once, the classic pre-breakout condition.

Bollinger inside Keltner → the squeeze; the most-used combination of the two
Upper band touch + RSI above 70 → the two overbought readings agreeing
Band touch + ADX below 20 → fade it; with ADX above 25 → do not
The centre line is just a 20 SMA, so it carries all that line's meaning too
%b reports the same position as a single number between 0 and 1

What to watch for

Touching a band is not a sell signal. In a strong trend price walks the upper band for weeks, and traders who fade every touch get run over; the bands describe volatility, not exhaustion.