Bollinger Bands consist of three lines: the middle band (20-period SMA) and upper/lower bands set 2 standard deviations above and below. The bands expand during high volatility and contract during low volatility. A Bollinger Band Squeeze (bands very tight) often precedes a major breakout — one of the most powerful signals in technical analysis. When price touches the upper band, it may be overbought; touching the lower band may be oversold.
A BB Squeeze occurs when the upper and lower bands come very close together — indicating low volatility. A squeeze is like a coiled spring: the breakout that follows is often sharp and sustained. Look for the squeeze followed by a volume surge and directional price move. This is one of the highest-probability breakout setups.
In a ranging market, touching the upper band = overbought signal, potential reversal short. In a strong uptrend, price "walking the band" (staying near upper band) = continuation signal, not reversal. Context matters. Always check the trend direction before assuming reversal at the bands.
High-probability buy: Price touches lower Bollinger Band + RSI below 30 (both oversold). High-probability sell: Price touches upper Bollinger Band + RSI above 70 (both overbought). This dual confirmation significantly reduces false signals compared to using either indicator alone.
%B = (Price − Lower Band) / (Upper Band − Lower Band). %B above 1.0 = price above upper band. %B below 0 = price below lower band. %B = 0.5 = price at middle band. Traders use %B to rank stocks by their position within the band — screening for stocks with %B below 0.1 finds oversold candidates.
Yes — option sellers love Bollinger Bands for IV (Implied Volatility) expansion/contraction analysis. A BB Squeeze means low IV — a good time to buy options (debit strategies like straddles). Wide bands mean high IV — better for selling options (credit strategies like Iron Condor, Strangle).
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