What are Bollinger Bands?
Bollinger Bands are volatility-based indicators developed by John Bollinger in the 1980s. Based on the moving average line (center line), the standard deviation is used to create upper and lower bands, visually showing how excessively the price has moved.
It is a default indicator on all major exchange charts and is one of the three essential secondary indicators along with RSI and MACD.
3 elements of Bollinger Bands
Middle Band = 20-day Simple Moving Average (SMA)
Upper Band = Center Line + (2 × Standard Deviation)
Lower Band = Center Line - (2 × Standard Deviation)
| Components | meaning | Color (normal) |
|---|---|---|
| center line | 20-day average trend | Orange |
| Upper band | Overbought baseline | blue |
| Bottom band | Oversold baseline | blue |
Statistical significance: In a normal market, approximately 95% of prices are within the band. Unusual price movement outside the band.
3 core principles of Bollinger Bands
Principle 1: Band Width = Volatility Indicator
- Band narrowing (squeeze): Low volatility → Big move imminent
- Band widening: High volatility → Trend strengthening or climax
Principle 2: Touch the upper and lower bands = extreme price
- Touch the lower band: Statistically oversold condition
- Touching the upper band: Statistically overbought condition
- However, in strong trends, there is also a phenomenon of band riding
Principle 3: Center line = regression criterion
Prices tend to return to the center line over the long term (mean reversion).
4 Bollinger Band trading strategies
Strategy 1: Bollinger Squeeze Breakout
The most powerful strategy. After the band narrows (squeeze), it enters the direction of a breakout.
Entry conditions:
- Bollinger Band width is close to 6-month low
- The price breaks through the upper or lower band based on the closing price.
- Accompanied by a surge in trading volume
Entry: Breakout Confirmed Bar Closing Price
Stop Loss: Opposite the center line
Goal: Additional movement by the band width (measurement movement)
Strategy 2: Double bottom + bottom band (W pattern)
Conditions:
1. The price touches the lower band and forms the first low point.
2. Second decline after a brief rebound
3. The second low is inside the lower band (down less than the first)
→ Bullish divergence + Bollinger double bottom = very strong long signal
Entry: When the center line breaks after the second low.
Stop Loss: Below the second low
Target: Upper band or double top high
Strategy 3: Band Walk
A phenomenon in which price moves along the upper (or lower) band during a strong trend.
Check out the long band walk:
- Price remains near the upper band for more than 3 consecutive bars
- Center line is pointing upward
Strategy: Trend following. Profit/liquidation when leaving the center line
Caution: Do not enter countertrend (other than the lower band, not yet a correction)
Strategy 4: Band Touch Mean Reversion
Used in sideways markets. Touch lower band → Long / Touch upper band → Short
Caution: Do not use this strategy in trending markets (still wrong)
Only used when Bollinger Band width remains constant
RSI combination required
Bollinger band settings
| Settings | default | Scalping | swing |
|---|---|---|---|
| SMA period | 20 | 10 | 50 |
| standard deviation | 2 | 2 | 2.5 |
In highly volatile markets such as the coin market, some traders increase the standard deviation to 2.5~3**.
Bollinger Band misunderstanding and truth
| misunderstanding | truth |
|---|---|
| Upper band = unconditional sell | ❌ In a strong trend, the band continues to rise |
| Bottom band = unconditional buy | ❌ In a strong decline, the band continues to fall |
| Band breakout = always inverted | ❌ The trend may accelerate after a strong breakout |
Core principle: Do not use Bollinger Bands alone, but combine them with RSI, MACD, and candle patterns.
Related guides
- Combining with MACD secondary indicator →
- RSI + Bollinger Band combination strategy →
- Bollinger Squeeze + Morning Star →
- EMA moving average →
- Liquidation price calculator →