Glossary · from the DESK dictionary
Bollinger Bands
A technical indicator developed by John Bollinger that surrounds a moving average with an upper and a lower band two standard deviations away, indicating volatility and relative price levels.
In plain words
The bands widen when volatility rises and contract when it falls.
In more detail
Bollinger bands wrap a standard deviation envelope around a moving average (classically 20 periods, 2 deviations). Their core statement is statistical: around 90 percent of prices sit inside the bands — touches are normal, not exceptional. This is exactly where most users fail: "band touched = sell" is the wrong default reading. Correct is regime separation: in sideways phases the bands act as reversal zones; in trends price "walks" the band and fades lose. The most informative derivative is bandwidth: its contraction (squeeze) announces expansion, its widening often marks the move's middle rather than its end.
Example
A trader reviews his band fades: in range phases (bandwidth below median) 64 percent won — in trend phases (bandwidth in the top third, price on the band for five candles) only 22 percent. He builds a simple regime filter: band fades only at narrow bandwidth, otherwise band touches count as trend confirmation. His fade hit rate rises to 61 percent on half the trades.
What it means for traders
An important practical concept in technical analysis and volatility measurement.
Common pitfalls
During strong trends the price can stay outside the bands for extended periods, which can produce false signals.
From the DESK dictionary. For information only, not investment advice.
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