Bollinger Bands Explained: How to Trade Volatility

Bollinger Bands consist of three lines: a middle moving average, and an upper and lower band plotted a set number of standard deviations away from it. Because standard deviation measures how spread out recent prices are, the bands automatically widen when volatility rises and narrow when it falls.

A common beginner mistake is treating the upper and lower bands like fixed overbought/oversold levels, similar to RSI. In a strong trend, price can ride along the upper or lower band for an extended stretch without reversing, so touching a band is not, by itself, a sell or buy signal.

Two patterns are genuinely useful: a "squeeze," when the bands narrow tightly, often precedes a sharp move in either direction as volatility that has compressed eventually releases; and a band breakout with rising volume is read as a stronger continuation signal than one on thin volume.

Bollinger Bands describe volatility, not direction, which is why they are usually paired with a trend or momentum indicator rather than used alone. The Tradeskill’s charts include Bollinger Bands for free on every crypto pair, so you can practice spotting squeezes and breakouts on live and historical data with $20,000 in virtual cash.