Bollinger Bands

Bollinger Bands are one of the most versatile technical indicators in forex trading. Created by John Bollinger in the 1980s, this volatility indicator consists of three lines that expand and contract based on market volatility. Mastering Bollinger Bands gives you a dynamic framework for identifying overbought and oversold conditions, breakouts, and trend strength.

How Bollinger Bands work

The three components of Bollinger Bands are:

• Middle Band — A 20-period Simple Moving Average (SMA) that serves as the baseline.
• Upper Band — The middle band plus two standard deviations, representing the upper boundary of expected price movement.
• Lower Band — The middle band minus two standard deviations, representing the lower boundary of expected price movement.

When price moves beyond the bands, it is unusually far from its recent average. That can be followed by a reversal or by a continuation, and the bands do not say which.

Understanding forex volatility with bands width

The distance between the upper and lower bands directly reflects forex volatility. When bands are wide, the market is experiencing high volatility. When bands are narrow, volatility is low. This makes Bollinger Bands a direct picture of recent volatility.

The Bollinger squeeze

The Bollinger squeeze is a widely described pattern. It occurs when the bands contract to their narrowest width, signaling extremely low volatility.

Band bounces in ranges

In ranging markets, price tends to bounce between the upper and lower Bollinger Bands like a ball bouncing between a floor and ceiling. The difficulty is that a range is only known to have ended after price has left it.

Bollinger band trend following

During strong trends, price will "ride the band" — consistently touching or exceeding the upper band in uptrends or the lower band in downtrends. Rather than treating these touches as reversal signals, use them as confirmation of trend strength. The middle band (20 SMA) serves as dynamic support in uptrends and dynamic resistance in downtrends.

Revised 4 October 2026. The statement that a move beyond the bands “often precedes a reversal”, and the description of the bands as an “excellent” indicator, were reworded as what the bands measure.