What the three lines tell you
- Middle band. The 20-period moving average. In a trend it acts as dynamic support or resistance; in a range it is the magnet price returns to.
- Outer bands. Two standard deviations out. Roughly 90% of closes fall inside them, so a close outside is genuinely unusual.
- Bandwidth. The distance between bands. Contracting bandwidth signals a coming expansion; expanding bandwidth signals a move already underway.
Setup one: the squeeze breakout
- Find the narrowest bandwidth of the last several months on a daily or 4-hour chart.
- Mark the high and low of the squeeze range — these are your breakout levels.
- Wait for a candle to close beyond one of them with above-average volume.
- Enter on the close or a retest; stop goes on the opposite side of the squeeze range.
- Target a multiple of the squeeze range height, since expansions usually overshoot.
Setup two: the band ride
When price closes outside the upper band and the bands are expanding, that is trend strength, not exhaustion. In a band ride you hold as long as closes stay above the middle band; the first close back below it is the exit. Traders who short every upper-band touch during a band ride donate money to the trend.
Setup three: mean reversion in a range
Only valid when bandwidth is flat and price has already respected both bands twice. Buy the lower band touch at a marked support, sell the upper band touch at a marked resistance, and target the middle band. The moment bandwidth starts expanding, this setup is off — the range is breaking.
Getting a band read out of a screenshot
Whether the bands are squeezing, expanding or flat is a visual judgement about the shape of the envelope over the last few dozen candles. Trade Eyes reads that shape straight from a screenshot, states which of the three regimes you are in, and gives you entry, invalidation and target levels that match the regime rather than a generic band-touch signal.
Which Bollinger setup applies
| Band behaviour | Market regime | Setup to use |
|---|---|---|
| Bands very narrow | Volatility collapsed | Squeeze breakout — trade the range break |
| Bands expanding, price outside | Strong trend | Band ride — hold above the middle band |
| Bandwidth flat, both bands respected | Range | Mean reversion toward the middle band |
| Bands expanding after a long trend | Possible climax | No new entries; manage the position you have |
Not sure which regime you are in?
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Analyze a chart freeFrequently asked questions
What do Bollinger Bands measure?
Bollinger Bands plot a 20-period moving average with an upper and lower band set two standard deviations away. The bands measure volatility: they widen when price becomes volatile and contract when it goes quiet.
Does touching the upper band mean sell?
No. In a strong uptrend price can ride the upper band for weeks. A band touch only means price is statistically stretched relative to recent range — it is a sell signal only when the market is ranging and the touch is rejected at a resistance level.
What is a Bollinger Band squeeze?
A squeeze is a period where the bands contract to an unusually narrow width, showing volatility has collapsed. Squeezes tend to precede expansion, so traders prepare for a breakout — though the squeeze itself does not tell you which direction it will break.
What are the best Bollinger Band settings?
The default 20-period average with 2 standard deviations suits most swing charts. Raising to 2.5 deviations reduces false touches on volatile instruments such as crypto; lowering to 1.5 produces more signals but far more noise.
Do Bollinger Bands work with other indicators?
They pair naturally with a momentum tool. Bands tell you how stretched price is, RSI or MACD tells you whether momentum agrees. A lower band touch with bullish RSI divergence at support is a far stronger setup than either signal alone.