Understanding Bollinger Bands
Bollinger Bands show whether a stock is relatively high or low and how volatile it is. Here’s how to read them.
On this page
Bollinger Bands are a popular technical indicator that wraps a stock’s price in an upper and lower band, showing whether it’s relatively high or low and how volatile it is.
How they’re built
Three lines:
- Middle band — a moving average (commonly 20-period).
- Upper and lower bands — set a number of standard deviations (usually 2) above and below the middle.
Because standard deviation measures volatility, the bands widen when the market is volatile and contract when it’s calm.
How traders read them
- Price near the upper band — relatively high; in a range, it may be "overbought."
- Price near the lower band — relatively low; possibly "oversold."
- Band squeeze (bands narrow sharply) — volatility is low and often precedes a big move/breakout. Traders watch a squeeze for an impending expansion.
- Walking the band — in a strong trend, price can ride along the upper (or lower) band; so touching a band isn’t an automatic reversal signal.
Important caveats
- Bands describe relative price and volatility, not direction. In a strong trend, "overbought" can stay overbought.
- They work best with other tools (volume, support/resistance) and a plan — not as a lone buy/sell trigger.
Bollinger Bands are a handy volatility lens, especially the squeeze. Combine, don’t rely. See how to read stock charts. Education only, not advice.
