Bollinger Bands

What it is

Bollinger Bands are a 20-period moving average with a band two standard deviations above and below it. When volatility rises the bands widen; when it falls they narrow.

A 'squeeze', where the bands are unusually tight, often comes before a big move.

How to spot it

• Tight bands after a quiet period: a squeeze.
• In a strong trend, price 'walks' along the upper or lower band.

How to use it

• Watch a squeeze for the breakout, then trade in its direction.
• In a range, fades from the outer bands back to the middle can work, with a stop outside.

Common mistakes

• Treating a touch of the outer band as an automatic reversal; in trends it isn't.
• Guessing the squeeze's direction before it breaks.

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