What Are Bollinger Bands?

Bollinger Bands consist of three lines: a 20-period Simple Moving Average (middle band) and two bands plotted two standard deviations above and below it. Because standard deviation measures volatility, the bands automatically expand in volatile markets and contract in quiet markets.

Approximately 95% of all price action occurs within the bands — making touches of the outer bands statistically significant events.

The Three Core Bollinger Band Strategies

Strategy 1: The Bollinger Band Squeeze

When the bands contract tightly together, the market is in a low-volatility consolidation phase — storing energy for a major move. This is called the Bollinger Band Squeeze.

Bollinger bands squeeze before breakout BTC 4H crypto trading guide

How to trade the squeeze:

  1. Wait for the bands to contract to their narrowest point in the past 6 months
  2. Watch for a breakout candle with above-average volume
  3. Enter in the direction of the breakout
  4. Stop loss: opposite side of the squeeze range
  5. Target: width of the squeeze projected from the breakout point

Strategy 2: The Bollinger Band Bounce

In ranging markets, the price tends to oscillate between the upper and lower bands, "bouncing" off each one. This mean-reversion strategy works when the market is not trending.

Bollinger band bounce buy at lower band ETH 1D crypto real example

Long setup: Price touches lower band + bullish reversal candle + RSI below 35 → Buy, target middle band (SMA 20)

Short setup: Price touches upper band + bearish reversal candle + RSI above 65 → Short, target middle band

Strategy 3: Riding the Bands (Trend Following)

In a strong uptrend, the price will repeatedly close near or outside the upper band. Pullbacks find support at the middle SMA 20. This is the most profitable strategy in trending markets.

Entry: Price pulls back to SMA 20 (middle band) in an uptrend

Stop: Below the lower band

Exit: When price closes below the SMA 20

Bollinger Bands + RSI Combination

The most powerful Bollinger Band setups combine band touches with RSI confirmation:

  • Strong buy: Lower band touch + RSI below 30 (oversold) + bullish divergence
  • Strong sell: Upper band touch + RSI above 70 (overbought) + bearish divergence

Key Takeaways

  • Bollinger Bands measure volatility and identify overbought/oversold conditions
  • The squeeze signals an impending large move — trade the breakout direction
  • The bounce strategy works in ranging markets; riding the bands works in trends
  • Always confirm band touches with RSI and candlestick patterns
  • The middle band (SMA 20) acts as dynamic support/resistance in trending markets

For related content, see our Bollinger Band Squeeze Pattern and RSI Bullish Divergence guides.