Indicator | Technique
Bollinger Bands
"Bollinger Bands enclose price between two dynamic bands based on volatility, signaling overbought/oversold conditions and impending breakouts."
In-Depth Definition
Developed by John Bollinger in the 1980s, Bollinger Bands consist of three lines: a simple moving average (usually 20 periods) in the center, and two bands drawn a set number of standard deviations (usually 2) above and below. When volatility rises, bands widen; when it falls, they narrow — a phenomenon called a 'Bollinger Squeeze'. A squeeze often precedes a violent price move. Statistically, price stays within the 2-standard-deviation bands ~95% of the time. Price touching the upper band is not automatically a sell signal in a strong trend — it may simply 'walk the band'. Classic strategies include mean-reversion (return to the central moving average) and breakout plays after a squeeze.
StarQuant Insight
StarQuant's AI detects squeezes across hundreds of assets simultaneously and assesses, using historical data, the probability and magnitude of the upcoming breakout. It also combines Bollinger Bands with the RSI to filter false signals.
Pro Tip
Wait for the Bollinger Squeeze (very tight bands) and a confirmed breakout candle before taking a position. Use volume to validate — a breakout without volume is often a false signal.