Indicators

Bollinger Bands: What They Are and How They Work

Astron Team · 09/24/2026 · 4 min read

Created by John Bollinger in the 1980s, Bollinger Bands belong to a small group of indicators that adjust themselves to an asset's volatility, instead of using a fixed price distance. That makes them useful in both calm and turbulent markets, as long as you understand what they actually measure.

The indicator is made up of three lines: a central moving average and two bands — upper and lower — built from the price's standard deviation around that average. The spacing between the bands increases when volatility rises, and shrinks when it falls.

How the calculation works

The standard setup uses a 20-period simple moving average as the central line, with the bands positioned two standard deviations away:

• Middle band: 20-period simple moving average.
• Upper band: 20-period average + (2 × standard deviation of the last 20 periods).
• Lower band: 20-period average − (2 × standard deviation of the last 20 periods).

Suppose an asset's 20-period average is at R$ 60.00 and the standard deviation for that same period is R$ 3.00. The upper band would sit at R$ 66.00 (60.00 + 2 × 3.00) and the lower one at R$ 54.00 (60.00 − 2 × 3.00). If, during a more volatile period, the standard deviation rises to R$ 5.00, the bands widen to R$ 70.00 and R$ 50.00, even with the central average staying in the same place.

What the standard deviation is capturing

Standard deviation is a statistical measure of dispersion: the more recent prices have varied around the average, the higher the value. That's why the bands breathe — widening during periods of bigger moves and narrowing when the price starts to move very little.

Why touching a band isn't an automatic signal

A common mistake is treating a touch on the upper band as a sell signal and a touch on the lower band as a buy signal, as if the bands were a fixed ceiling and floor. They aren't. In a strong uptrend, the price can hug the upper band for several candles in a row without that meaning a reversal — Bollinger himself called this behavior a sign of trend strength, not exhaustion.

The more robust reading looks at how the price behaves relative to the bands over time, not at a single isolated touch. A price that touches the upper band and immediately closes back inside it, forming a reversal candle, carries a different signal than a price that breaks through the band and keeps moving away from it candle after candle.

The squeeze: when the bands tighten

One of the best-known uses of the indicator is identifying the so-called squeeze — the moment when the bands narrow considerably, signaling historically low volatility. Squeeze periods tend to precede stronger moves, though the indicator doesn't say which way that move will lean.

One example: if the distance between an asset's bands drops to its lowest level in three months, this indicates the market is compressed, usually ahead of a volatility expansion. Traders who trade this pattern usually wait for a breakout on one side of the range, with volume, to define the direction of the entry — instead of trying to guess the side before the breakout happens.

Adjusting the parameters

The 20-period setting and the 2-standard-deviation multiplier are the market standard, but they aren't a fixed rule. Shorter periods (like 10) make the bands more sensitive to recent moves, useful for shorter-term trades. Smaller multipliers (like 1.5) narrow the bands and generate more touches, at the cost of more false signals.

Using the bands with judgment

Bollinger Bands work best as a reading of relative volatility and trend context rather than as a standalone buy or sell trigger. Combined with a momentum indicator, such as the RSI or Stochastic, and with attention to price behavior — not just the touch on the line — they help form a fuller reading of the market, always keeping in mind that no band guarantees the price will reverse at the expected point.