Bollinger Bands: Setup and Strategy
Bollinger Bands dynamically adapt to volatility, making them useful for both trend following and mean reversion strategies.
Technical Analysis · May 14, 2026 · 5 min read
Bollinger Bands consist of three lines: a middle 20-period SMA, and upper and lower bands plotted two standard deviations above and below it. Because they're based on standard deviation, the bands expand during volatile periods and contract during quiet periods — making them a dynamic tool for assessing price relative to recent volatility.
Squeezes and Breakouts
When the bands narrow significantly (a 'squeeze'), it indicates compressed volatility — often a precursor to a sharp directional move. Traders watch for price to break out from the squeeze with momentum. The direction of the breakout, confirmed by volume and the position of price relative to the midline, determines the trade direction.
Mean Reversion vs Trend Following
In ranging markets, price tends to oscillate between the upper and lower bands, reverting toward the midline — supporting mean reversion entries. In trending markets, price 'walks the band,' hugging the upper band in an uptrend or the lower band in a downtrend. Using Bollinger Bands without understanding which regime you're in leads to picking tops in strong trends. Always combine band signals with trend context.
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