Bollinger Bands Meaning

Bollinger Bands are a technical analysis indicator used to assess volatility and help identify when an asset may be overbought or oversold relative to its recent price behavior. The indicator consists of three lines:

• Middle band: typically a 20-period simple moving average (SMA)
• Upper band: middle band + (usually) 2 standard deviations
• Lower band: middle band − (usually) 2 standard deviations

Because standard deviation expands during volatile periods and contracts during stable periods, the bands widen when price volatility increases and narrow when volatility drops. Common interpretations include:

• Price touching or moving above the upper band may suggest the asset is stretched to the upside (potentially overbought).
• Price touching or moving below the lower band may suggest the asset is stretched to the downside (potentially oversold).
• A band squeeze (very narrow bands) often signals low volatility and can precede a large move-but it does not predict direction.

Bollinger Bands are lagging indicators (they respond to past price action), so traders typically combine them with volume, trend indicators, RSI, or support/resistance analysis to avoid false signals.