Summary
Bollinger Bands are a chart indicator made up of a middle Moving Average and two bands placed above and below it. The distance of the outer bands from the middle line is based on the recent variability of prices.
The bands expand and contract as measured volatility changes.
Why they matter
Bollinger Bands can help investors visualise whether recent price variability is relatively high or low. They also show where the current price sits in relation to a recent average and a volatility-based range.
This can provide context for periods of consolidation, increased volatility, or unusually large moves.
How they are calculated
Middle Band = Moving Average over the Selected Period
Upper Band = Middle Band + (Selected Multiplier × Standard Deviation)
Lower Band = Middle Band − (Selected Multiplier × Standard Deviation)
The exact appearance depends on the chart interval, Moving Average period, standard-deviation period, and multiplier selected in the chart settings.
How to read them
Wider bands indicate that recent prices have been more variable, while narrower bands indicate lower measured volatility. A price near an outer band shows where it sits relative to the recent average and volatility range.
Touching or moving beyond an outer band does not by itself mean that a price must reverse. Strong trends can remain close to one band for an extended period.
Things to keep in mind
Bollinger Bands are based on historical prices and do not predict the direction of the next move. Different settings can materially change the bands and the signals an investor may perceive.
They should be reviewed together with price behaviour, trading activity, market context, and other relevant information rather than used as a standalone trading rule.