Bollinger Bands — Volatility Envelopes

Overview

Bollinger Bands plot a moving average with upper and lower bands set at 2 standard deviations, expanding during high volatility and contracting during low volatility to create actionable squeeze and breakout signals. The Bollinger Squeeze is especially powerful when combined with Keltner Channels in the TTM Squeeze setup, a favourite of professional traders. Pair Bollinger Bands with the RSI to filter false signals and confirm breakout entries. Set them up on TradingView for real-time alerts and multi-timeframe analysis.

How It Works

Middle band = 20-period SMA. Upper band = SMA + (2 × standard deviation). Lower band = SMA − (2 × standard deviation). Approximately 95% of price action falls within the bands under normal distribution.

Key Signals

• A Bollinger Squeeze (narrow bands) precedes explosive moves in either direction.
• Price touching the upper band isn't automatically overbought in an uptrend.
• Walking the band (price hugging upper or lower band) confirms strong trend momentum.
• W-bottoms and M-tops within the bands are classic reversal patterns.

Common Mistakes

• Selling when price touches the upper band in a strong uptrend — it's a sign of strength.
• Using Bollinger Bands alone for entry — always combine with RSI or volume.
• Not recognizing squeezes — the longer the squeeze, the bigger the breakout.