## What Are Bollinger Bands? Developed by John Bollinger in the 1980s, Bollinger Bands are a volatility-based technical indicator. They consist of three lines drawn on the price chart: 1. **The Middle Band:** Usually a 20-period Simple Moving Average (SMA). 2. **The Upper Band:** The Middle Band plus two standard deviations of price. 3. **The Lower Band:** The Middle Band minus two standard deviations of price. Because standard deviation is a mathematical measure of volatility, the bands automatically expand when the market is volatile and contract when the market is quiet. ## The Core Concept: Mean Reversion Statistically, approximately 95% of all price action occurs *inside* the Bollinger Bands. Therefore, when the price touches or exceeds the upper or lower band, it is considered a statistical anomaly. - Price at the **Upper Band** is considered relatively high (overbought). - Price at the **Lower Band** is considered relatively low (oversold). However, "overbought" does not mean "sell immediately." In a strong trend, the price can "ride the band" for an extended period. ## Strategy 1: The Bollinger Bounce (Mean Reversion) This strategy works best in ranging, sideways markets. When the price hits the lower band, traders look for a bullish reversal candlestick (like a [Bullish Engulfing](/patterns/candlestick/bullish-engulfing/)) and buy, targeting the middle SMA. When the price hits the upper band, traders look for a bearish reversal candlestick (like a [Shooting Star](/patterns/candlestick/shooting-star/)) and short, targeting the middle SMA. ## Strategy 2: The Bollinger Band Squeeze This is the most explosive strategy associated with the indicator. Markets alternate between periods of low volatility and high volatility. When volatility drops, the bands contract tightly together, forming a [Bollinger Band Squeeze](/patterns/indicators/bollinger-band-squeeze/). This squeeze is like a coiled spring. It indicates that the market is storing energy for a massive move. Traders wait for the price to break out of the squeeze with strong volume. The direction of the breakout usually dictates the direction of the new trend. ## Strategy 3: Riding the Bands (Trend Following) While beginners use the bands for mean reversion, professionals use them for trend following. In a powerful uptrend, the price will consistently close near or outside the upper band. Pullbacks will often find support at the middle 20-SMA. A trend trader will enter long on a pullback to the 20-SMA and hold the position as long as the price continues to "ride" the upper band. The trade is only exited when the price crosses and closes below the 20-SMA. ## Combining with Other Indicators Bollinger Bands should rarely be used in isolation. They pair exceptionally well with momentum oscillators like the RSI. For example, if the price hits the upper Bollinger Band *and* the RSI shows a [Bearish Divergence](/patterns/indicators/rsi-bearish-divergence/), the probability of a successful short trade increases dramatically. ## Summary Bollinger Bands are a unique tool that visualises both trend and volatility simultaneously. Whether you are trading mean reversion in a range or explosive breakouts from a squeeze, they provide an excellent mathematical framework for your trading.