TRADING GLOSSARY

Bollinger Bands: volatility channels around price

Bollinger Bands are a technical indicator consisting of three lines: a 20-period simple moving average (the middle band), an upper band at 2 standard deviations above the average, and a lower band at 2 standard deviations below. The bands expand and contract based on market volatility.

How to read Bollinger Bands

Band width: When bands are wide, volatility is high. When they squeeze tight (called a “Bollinger Squeeze”), volatility is low and a significant move is often imminent. Price touching the upper band may indicate overbought conditions in a ranging market, or strong momentum in a trending market. Price touching the lower band may indicate oversold conditions or strong downward momentum.

Trading strategies

Mean reversion: In sideways markets, buy when price touches the lower band and sell when it touches the upper band. Breakout: After a Bollinger Squeeze, trade in the direction of the breakout. Walking the bands: In strong trends, price tends to “walk” along one band. In an uptrend, price stays near the upper band. Trying to sell at the upper band in a strong uptrend is a common mistake.

AskTrade’s Technical Analysis Agent calculates Bollinger Band positions across multiple timeframes and identifies squeeze setups automatically.

Disclaimer: This is for educational purposes only and does not constitute financial advice. Trading involves significant risk of loss.

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AskTrade analyses are AI-generated and do not constitute financial advice.