What are Bollinger Bands?
Bollinger Bands wrap a moving average in two bands set a number of standard deviations above and below it. Because standard deviation is a measure of volatility, the bands widen when the market is volatile and contract when it's calm — turning a single chart overlay into a live volatility gauge.
The middle band is a moving average (commonly 20-period); the outer bands sit two standard deviations above and below. Since roughly most price action stays within two standard deviations, a touch of an outer band marks a statistically stretched move — conceptually similar to VWAP's standard-deviation bands, but anchored to a moving average rather than volume.
Two opposite uses
This is what confuses people: Bollinger Bands support two contradictory strategies. In a range, a tag of the outer band is a mean-reversion signal — fade it back toward the middle. In a trend or after a squeeze (bands pinched tight), an expansion is a breakout signal — go with it. Using the wrong read for the regime is the classic mistake.
Volatility is the real information
The most reliable thing Bollinger Bands tell you is not direction but volatility state: contracting bands mean a quiet market that often precedes expansion. That's regime information a system can use to switch behaviour or size, not a buy/sell signal on its own.
How a system uses them
A rules-based strategy defines exactly which read applies under which conditions, removing the human error of fading a breakout or chasing a reversion. The band tag is a precise condition, taken consistently — the system doesn't get bored waiting for the right regime, and doesn't override the rule because a move “looks” different this time.
Bollinger Bands are a moving average wrapped in volatility bands. They support opposite plays — mean reversion in ranges, breakout after a squeeze — so the regime decides which applies. Their clearest signal is volatility, not direction.
An indicator is only as good as the discipline applying it
The free Playbook shows six rules-based strategies that apply their signals identically, every time — no second-guessing.
Get the PlaybookEducational content, not financial advice. No indicator predicts the future or guarantees profits; indicators describe past and present price behaviour only. All strategy figures referenced are hypothetical, from backtested data and Monte Carlo simulation; past and simulated performance does not guarantee future results. Trading involves substantial risk of loss.