1. What are Bollinger Bands?
Bollinger Bands, developed by John Bollinger, are a volatility-based technical indicator. Upper and lower bands around a moving average display a price range.
💡 Components
Middle line = 20-day simple moving average, SMA 20.
Upper band = SMA 20 + 2 standard deviations.
Lower band = SMA 20 − 2 standard deviations.
The source describes approximately 95% of prices as moving inside the bands.
2. Main patterns
1. Trading band touches
- A price touching the upper band is treated in the source as an overbought signal and a reason to consider selling.
- A price touching the lower band is treated as an oversold signal and a reason to consider buying.
- In a strong trend, however, price can continue along a band, known as band walking.
2. Bollinger squeeze
Extremely narrow bands are interpreted as a sign that a large move may be approaching. The squeeze does not establish its direction.
3. Band expansion
When bands widen sharply and then begin narrowing again, the source interprets this as a sign that the trend may be ending.
3. Combining indicators
- BB and RSI: RSI at 30 or below plus a lower-band touch is the source's strong buying signal.
- BB and MACD: A bullish MACD cross near the lower band is used to confirm a reversal.
- BB and volume: A band breakout with a volume surge is used to confirm the start of a trend.
4. AI use of Bollinger Bands
The source describes NOONOO TRADING as analyzing multiple technical indicators, including Bollinger Bands, in real time.