Bollinger Bands Indicator are one of the most popular technical indicators used in trading. They help traders identify volatility, trend direction, and potential overbought or oversold conditions.
Bollinger Band indicator developed by John Bollinger, Bollinger Bands consist of three lines:
1. Middle Band: A simple moving average (SMA), usually set to 20 periods.
2. Upper Band: The middle band plus 2 standard deviations.
3. Lower Band: The middle band minus 2 standard deviations.

Upper Band = SMA + 2 * Standard Deviation
Middle Band = SMA (typically 20-period)
Lower Band = SMA – 2 * Standard Deviation

Bollinger Bands expand and contract based on market volatility:
• When volatility increases, the bands widen.
• When volatility decreases, the bands contract.
Traders use this behavior to:
Spot Overbought/Oversold Conditions:
• Price touches or moves outside the upper band → potentially overbought.
• Price touches or moves outside the lower band → potentially oversold.
Identify Breakouts:
• Squeeze: When the bands are very close together, it suggests a volatility contraction. This often precedes a breakout (either up or down).
Trend Continuation or Reversals:
• Prices riding the upper band during an uptrend = strong bullish momentum.
• Prices riding the lower band during a downtrend = strong bearish momentum.
Example in Action
Imagine you’re trading a stock:
If the price is bouncing off the lower band, you might consider going long. If the price is hugging the upper band, you might consider holding or selling. If the bands are tightening (a squeeze), you may prepare for a breakout and wait for confirmation.