Founder, Underpitch · Educational material on market structure, chart reading and risk awareness.
3 July 2026
Bollinger Bands place upper and lower volatility bands around a moving average, commonly 20 periods with two standard deviations. Bands expand when volatility rises and contract when it falls. A band touch can indicate strength or extension; it is not automatically a reversal.
Key points
- Band width measures relative volatility.
- A squeeze signals compression, not direction.
- Price can walk the band in a strong trend.
- Mean reversion works poorly during expansion trends.
Components
The middle line is usually a 20-period SMA. The outer bands are based on standard deviation, so their distance changes with volatility.
Squeeze and expansion
Narrow bands show compression. A subsequent expansion may accompany a breakout, but direction must come from price structure.
Band walks
In strong uptrends price can repeatedly close near the upper band. Selling every touch fights momentum.
Mean-reversion setups
A return toward the middle band may be useful in ranges, but trend, support and confirmation are essential.
Worked Indian-market example
A stock forms a six-week range and Bollinger Band width contracts. Price then closes above resistance with expanding bands and volume. The squeeze did not predict direction; the breakout supplied it.
Quick reference
| Concept | What it shows | Practical meaning |
|---|---|---|
| Middle band | Moving average | Mean/trend reference |
| Upper/lower bands | Volatility envelope | Relative extension |
| Narrow bands | Low relative volatility | Compression |
| Expanding bands | Rising volatility | Trend or sharp movement |
Risks and limitations
- Standard settings may not suit every asset.
- Band touches are frequent in strong trends.
- Squeezes can produce false starts.
- Volatility expansion can widen losses quickly.
Frequently asked questions
Is touching the lower band a buy?
No. It may reflect strong downside momentum.
Does a squeeze predict direction?
No, only compression.
What are standard settings?
20-period SMA and two standard deviations are common.
Can bands be used with RSI?
Yes, but avoid treating correlated signals as independent proof.
Sources and methodology
Technical analysis is a market-study framework, not a promise of returns. Verify exchange rules, contract specifications and risk disclosures from official sources before acting.
This page is for education and chart-reading awareness. It is not a personalised investment, trading, legal or tax recommendation. Technical setups can fail and market losses can exceed the planned amount because of gaps, leverage, liquidity and execution.