Lesson T8.1 · 1 of 7 · Volatility and volume
Bollinger Bands explained: the formula, the squeeze and band walks
Bollinger Bands are the 20-day moving average plus and minus two standard deviations of the price. They widen when the market is jumpy and narrow when it is calm. Touching the upper band is not a sell signal: in a trend, the price can ride the band for days.
Terms in this lesson
- Bollinger Bands
- A channel around the average price that widens when the market gets choppy.
- Volatility
- How much the price usually goes up and down in a year.
- Moving average
- The average price over the last trading days: the trend without the noise.
How Bollinger Bands are calculated
Definition
What are Bollinger Bands?
Three lines: the 20-day average and two bands 2 standard deviations away from it.
The middle line is the 20-day simple moving average. The upper band = the average + 2 × the standard deviation of the last 20 closes; the lower band = the average - 2 × the standard deviation. Standard deviation measures how widely prices are spread around the average, so the bands widen on their own when the market gets jumpy. John Bollinger created them in the early 1980s and uses the “population” standard deviation (dividing by 20, not 19).
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Create a free accountThe Bollinger squeeze and band expansion
Volatility comes in waves: a quiet spell is usually followed by a lively one. When the bands narrow sharply, traders call it a squeeze. Bollinger tracks band width precisely to spot it.
- Breakout
The price barely moves around 92-93 for 16 days on low volume, and the Bollinger Bands close in on each other. On day 22 the price jumps above the upper band on more than three times the volume, then keeps climbing towards 104 while the bands spread apart.
Walking the bands: why a band touch is not a sell signal
The price climbs from about 71 to 93 in 35 days. It tags the upper band on days 2-10, 21-22 and 34-35. The pullbacks in between drop towards the middle line (the 20-day average) but stop above it.
Anyone who sold at the first touch of the upper band, at around 72, would have missed the climb to 93. In a strong trend the price walks the band: it touches it again and again, and the pullbacks stop around the middle line. That is rule 7 on Bollinger’s list.
- Rule 4If you use another indicator alongside, pick one that measures something different (a volume indicator, say, rather than a second momentum one).
- Rule 6A tag of the upper band is not, on its own, a sell signal; a tag of the lower band is not, on its own, a buy signal.
- Rule 7In a trend, the price can walk up the upper band or down the lower band.
Lessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: John Bollinger, bollingerbands.com (the history of the bands and the 22 rules), accessed on 29 October 2026; interview with John Bollinger, Technical Analysis of Stocks & Commodities (May 2002); StockCharts ChartSchool (Bollinger Bands, Bollinger BandWidth). The charts are teaching diagrams, not real prices.