Bollinger Bands wrap price in a volatility envelope. A middle line is a moving average — usually a 20-period — and an upper and lower band sit a set number of standard deviations away. When volatility rises the bands widen; when it falls they narrow.
What the bands describe
Because the bands are based on standard deviation, price spends most of its time inside the envelope. Reaching the upper band simply means price is high relative to recent action; reaching the lower band means it is low. It describes relative position, not a signal by itself.
The band-touch trap
Beginners often sell every touch of the upper band and buy every touch of the lower one. This fails in trends: in a strong uptrend price can 'walk the band', riding the upper edge for a long stretch. Band touches are only worth fading in a clearly ranging market, and even then only with confirmation.
- Middle band: a moving average of recent price.
- Outer bands: standard deviations away — they measure volatility.
- Widening bands = rising volatility; narrowing = falling volatility.
- In trends price can ride a band; touches are not reversal signals.
Bollinger Bands map volatility and relative price position — a band touch is context, not a reversal signal, especially in a trend.
The most useful setup from these bands comes when they contract sharply — the Bollinger squeeze — which the next module covers.