What Are Bollinger Bands? How to Use This Indicator
Bollinger Bands draw a “channel” around the price and show how calm or excited the market is. Here's how to read them.
What they're made of
The indicator was created by John Bollinger. Standard settings:
- Middle line: a simple moving average over 20 candles.
- Upper band: the average plus two standard deviations.
- Lower band: the average minus two standard deviations.
When volatility rises, the bands widen; when it falls, they narrow.
How to read them
| Situation | What it means |
|---|---|
| The bands have narrowed | The market has gone quiet, often before a strong move |
| Price rides along the upper band | A strong uptrend |
| Price bounces from band to band | Most likely a sideways market |
| Price breaks outside a band | A sharp move, but not a reversal signal |
Beginner mistakes
- Selling every touch of the upper band. In a trend, the price can ride it for weeks.
- Treating a squeeze as a direction signal. It tells you a move is coming, but not which way.
- Trading without a stop-loss, hoping for a return to the average.
The indicator works better together with levels and the trend. How not to overload your chart is covered in the lesson indicators without the obsession; the basics are in the article how to read a chart.
Aspiro Trade — signals on 45 assets, each with an entry, take-profit and stop-loss included. First month free.
- Bollinger Bands are an average plus a channel of two deviations.
- A squeeze is the calm before a move, but not its direction.
- Touching a band is not a signal by itself.
Frequently Asked Questions
What settings should a beginner use?
The standard ones: 20 periods and 2 deviations. Most traders use them, and there's no need to change them without a reason.
What does it mean when the price breaks outside a band?
That the move is unusually strong for the last 20 candles. In a trend, this often means continuation, not reversal.
Can I trade with Bollinger Bands alone?
It's not a good idea. Use them as a complement to trend and levels, and always set a stop-loss.
Free Aspiro Academy
26 lessons on investing and trading from scratch: videos, practice in the Aspiro apps, quizzes and a certificate. Lesson texts are open without sign-up.