Bollinger Bands
Bollinger Bands draw a moving average plus two volatility-scaled bands around it. Price touching the bands marks statistically unusual moves.
What It Measures
Volatility and how far price has strayed from its average.
The Math (Simplified)
Take a 20-day average, then add/subtract 2 standard deviations of daily price. Bands widen when volatility rises and narrow when it falls.
Default Inputs & Tuning
20-day average with 2 standard deviations is the standard. Narrowing bands ('squeeze') often precede breakouts.
When It Works (Market Edge)
Mean reversion in ranges: buying at the lower band and selling at the middle.
When It Fails
Breakouts and trends: price can ride the outer band for days; 'touch the band' is not a reversal signal in a trend.
Common Myths
Myth: Price touching the lower band means it must bounce.
Truth: In a downtrend, price hugs the lower band for extended stretches. The bands describe where price is, not where it will go.
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