Bollinger Bands Strategy

Bollinger Bands are one of the most versatile indicators in trading. They measure volatility and help you identify potential turning points in the market.

What Are Bollinger Bands?

Bollinger Bands consist of three lines: a middle band (a moving average) and two outer bands that represent the standard deviation of price. When the bands widen, volatility increases. When they contract, volatility decreases.

Trading Strategies

1. Bounce Strategy

When price touches the lower band, this can signal a potential bounce upward. When price touches the upper band, a downward correction may follow.

2. Squeeze Strategy

When the bands contract tightly, this is called a squeeze. It indicates low volatility. A strong breakout often follows.

3. Trend Following

In a strong trend, price can ride along an outer band for a long time. Use the middle band as dynamic support or resistance.

Settings

The default setting is a 20-period moving average with 2 standard deviations.

Tips

• Combine Bollinger Bands with the RSI for stronger signals
• Wait for confirmation before opening a trade
• Use them on multiple timeframes for context

Conclusion

Bollinger Bands are a powerful tool for measuring volatility. They work best combined with other indicators and price action analysis.