What Are Bollinger Bands? How to use it.

✅ What Are Bollinger Bands?

Bollinger Bands are a volatility-based technical analysis tool developed by John Bollinger. They consist of three lines:

1. Middle Band: 20-period Simple Moving Average (SMA)


2. Upper Band: Middle Band + 2 standard deviations


3. Lower Band: Middle Band - 2 standard deviations



The bands expand and contract based on price volatility.

📊 What Bollinger Bands Tell You

Contraction (Squeeze): Low volatility, possible breakout coming

Expansion: High volatility, breakout in progress or exhausted

Price Touches Band: Doesn’t mean reversal—it's a sign of strength or weakness


🎯 Mastering Strategies with Bollinger Bands

1. Bollinger Band Squeeze (Breakout Strategy)

Setup: Bands are very close together (low volatility)

Signal: Wait for breakout and volume spike

Action: Enter in direction of breakout

Tip: Combine with MACD or RSI for confirmation


> 🔍 Example: If the price breaks above the upper band with strong volume after a squeeze → potential long entry.

2. Mean Reversion (Reversal Strategy)

Setup: Price touches or exceeds upper/lower band

Signal: Look for RSI divergence, candlestick reversal patterns

Action: Fade the move back to the 20 SMA (mean reversion)

Tip: Works best in ranging markets


> ⚠️ Warning: Don’t short just because price touches the upper band. Look for confluence.

3. Trend Riding with Bands

Setup: Price rides upper/lower band

Signal: Pullbacks to the 20 SMA in a strong trend

Action: Enter on bounce near SMA if the trend is strong

Tip: Use higher timeframes to confirm the trend


> 🟢 In an uptrend, buy near the 20 SMA when price pulls back but doesn’t break lower band.


📌 Key Tips for Mastery

1. Adjust settings for asset/timeframe (e.g., crypto might need a 10 or 14 SMA)

2. Never use Bollinger Bands alone – combine with:

RSI (for overbought/oversold confirmation)

MACD (trend confirmation)

Volume (for breakout confirmation)

3. Use multiple timeframes – e.g., 4H for trend, 15m for entry

4. Avoid chasing band breakouts without confirmation

5. Backtest strategies with your preferred asset


🧠 Advanced Concepts

Double Bottoms Outside Band: When price forms a W-bottom with the second low outside the lower band bullish reversal setup.

Walking the Band: In strong trends, price can "walk" along the band don’t fade too early.

Band Width: Track the width of bands to detect upcoming breakouts.


⚠️ Disclaimer

This guide is for educational purposes only and does not constitute financial advice. Trading involves risk, and past performance does not guarantee future results. Always do your own research (DYOR) and consult with a financial advisor before making any investment decisions.