What it is
Bollinger Bands plot standard deviation bands around a moving average, so they widen in volatile conditions and contract in quiet ones.
How traders use it
- To see whether volatility is expanding or contracting
- To frame mean-reversion setups
- To anticipate breakouts after a squeeze
Worked example
The bands contract into a tight squeeze through midday, then expand sharply on a volume surge. Breakout traders use the expansion as confirmation.
Limitations
- Touching a band is not a signal
- Behaves differently across instruments
Common mistakes
- Automatically fading a band touch
- Using bands without volume context
Educational content only. TradeCaster does not provide financial advice and past results never imply future performance.