Bollinger Bands
A volatility indicator consisting of a moving average and two standard deviation bands above and below it, widening during volatile periods and narrowing during calm ones.
What is Bollinger Bands?
Bollinger Bands, created by technical analyst John Bollinger in the 1980s, consist of three lines plotted on a price chart: a simple moving average (typically the 20-day SMA) as the middle band, and upper and lower bands placed two standard deviations above and below the middle band. The bands automatically expand when price volatility increases and contract when volatility decreases, making them a dynamic rather than fixed tool. Prices touching or exceeding the upper band are considered relatively high; prices touching the lower band are considered relatively low. A Bollinger Band squeeze — when the bands contract sharply — often precedes a significant price breakout, though it does not predict the direction.
Example
In early 2024, Apple shares traded within a tight Bollinger Band squeeze for several weeks, with the upper and lower bands compressing to their narrowest range in months. Technical analysts viewed this as evidence of a coiling market preparing for a directional move. When Apple subsequently broke above the upper band following stronger-than-expected iPhone demand data, many traders interpreted this as a buy signal.
Source: Investopedia — Bollinger Bands