What Are Bollinger Bands? Volatility Bands Explained

Bollinger Bands are a set of three lines drawn on a price chart that show how far a stock is straying from its recent average — and crucially, how volatile it's being. The bands stretch wide when price is swinging and pull in tight when things go quiet.

The three lines

• The middle band — a moving average, usually a 20-period simple moving average. This is the "centre of gravity," the recent average price.
• The upper band — placed a set distance above the middle.
• The lower band — the same distance below the middle.

Price tends to travel between the upper and lower bands, using the middle as a kind of anchor.

What makes the bands special: they breathe

The distance of the outer bands from the middle isn't fixed — it's based on standard deviation, a statistical measure of how spread out recent prices have been. The bands are typically set two standard deviations from the moving average. In plain terms:

• When price is jumping around (high volatility), standard deviation is large, so the bands widen.
• When price is calm and range-bound (low volatility), standard deviation is small, so the bands tighten.

What traders read from them

Bollinger Bands are mainly a volatility tool. A few things traders observe (all descriptive, none a trade instruction):

• The squeeze. When the bands pull in very tight, volatility has dropped sharply. Since quiet periods often precede bigger moves, traders watch squeezes closely — but the bands give no hint of which direction a move will go.
• Touching a band. Price reaching the upper band means it's stretched well above its recent average; the lower band means well below. This is not automatically "too high" or "too low" — in a strong trend, price can ride along a band for a long time.
• Width over time. Steadily widening bands show volatility rising; narrowing bands show it falling.

A common beginner mistake

Many newcomers assume price touching the upper band means "sell" and the lower band means "buy." That's a misreading. The bands measure distance from an average, not value. During a powerful uptrend, a stock can hug the upper band for days — treating each touch as a reversal signal would be a mistake. The bands describe how far and how fast, not right or wrong. They pair well with tools like RSI and price context for a fuller read.

The bottom line

Bollinger Bands wrap a moving average in an upper and lower band set two standard deviations away, so the bands automatically widen when a stock is volatile and tighten when it's calm. They're a volatility lens — useful for spotting quiet "squeeze" periods and how stretched price is from its average. Just don't mistake a band touch for a buy or sell signal; the bands show distance and volatility, not value or direction.