7.21What are Bollinger Bands?
1What is it?
Bollinger Bands are three lines: a middle moving average (often 20-period) and bands 2 standard deviations above and below it.
2Why does it exist?
Bands widen when volatility rises and narrow when it falls. A tight "squeeze" often comes before a big move (direction unknown).
3Diagram
Middle (10-SMA)Upper bandLower band
4Quick revision
- MA ± 2 standard deviations.
- Width = volatility.
- Squeeze often precedes big moves.
5Knowledge check
Q1. What do narrowing bands mean?Show answer
Volatility is falling.
Q2. Does a squeeze tell you the breakout direction?Show answer
No.
Q3. Default settings?Show answer
20-period MA with 2 standard deviations.