What Are Bollinger Bands?
Bollinger Bands are a volatility indicator created by John Bollinger. They consist of three lines: a simple moving average (typically 20 periods) in the middle, an upper band at +2 standard deviations, and a lower band at -2 standard deviations. The bands expand and contract based on price volatility.
How Bollinger Bands Work
When volatility increases, the bands widen. When volatility decreases, they narrow — creating a "squeeze" that often precedes significant price moves. Price touching or exceeding the upper band suggests overbought conditions, while touching the lower band suggests oversold conditions. The bandwidth (distance between bands) itself is a valuable volatility metric.
Why It Matters for Traders
Bollinger Band squeezes are one of the most reliable volatility breakout signals in crypto. When the bands compress to unusually narrow levels, a large directional move typically follows. Traders use this to time entries and set stop-losses, combining Bollinger Bands with volume confirmation to filter false breakouts.