Bollinger Bands: Reading Volatility Squeezes and Expansions

In this article we look at Bollinger Bands.

Many traders first learn them as:

upper band → overbought = sell,
lower band → oversold = buy.

In live markets, using them this way often leads to
fighting strong trends over and over.

Here we take a different angle:

Treat Bollinger Bands primarily as a
volatility indicator —
they show how much the market is moving, not just in which direction.

When the bands contract, volatility is low — a squeeze.
When they expand, volatility is increasing — a volatility expansion.

We’ll focus on using Bollinger Bands to judge:

where trends are more likely to start or accelerate, and
which breakouts are more likely to be meaningful.

The diagram below illustrates the basic structure
of squeeze → expansion → trend with Bollinger Bands.

Left: volatility decreases and the bands narrow into a squeeze.
Right: price breaks the upper band and the bands widen as trend develops.

The goal is to stop asking “Did price hit the band?”
and start asking “How are the bands themselves changing?”

1. Basic Structure of Bollinger Bands

Bollinger Bands consist of three lines:

Middle band
- Typically a simple moving average (SMA), e.g. 20-period SMA.
Upper band
- Middle band + k × standard deviation (σ),
- e.g. 20 SMA + 2σ.
Lower band
- Middle band − k × σ,
- e.g. 20 SMA − 2σ.

Key idea:

Standard deviation reflects recent volatility.
When price swings are large, σ gets bigger → bands widen.
When price stays in a tight range, σ shrinks → bands contract.

So Bollinger Bands visually show:

“How far has price been moving away from its recent average?”
over the lookback window.

2. Band Width and Volatility: Squeeze and Expansion

To use Bollinger Bands effectively,
you should pay close attention to band width itself.

When bands are wide
- Recent volatility is high,
- big candles occur frequently,
- and the trend may already be well underway.
When bands are narrow (squeeze)
- Price is confined to a narrow range,
- candle bodies are small,
- and the market may be storing energy
  for a larger move.

One of the most practical uses of Bollinger Bands
is identifying squeeze → breakout sequences:

When band width falls to unusually low levels
(relative to the last few months), and
swing-vs-correction shows
an extended consolidation or range,

the probability of a larger directional move tends to increase.

3. A Safer Way to Interpret Upper and Lower Bands

The simple rule “sell the upper band, buy the lower band”
is especially dangerous in strong trends.

3-1. Bands plus trend context

If you combine Bollinger Bands with trend tools like
MA, MACD, ADX from
trend, you’ll often see:

In uptrends:
- price tags the upper band repeatedly, or
- “walks the band” — hugging the upper band for long stretches.
In downtrends:
- price tags or rides the lower band.

So:

an upper band touch may simply mean
a strong upswing inside an ongoing uptrend,
and a lower band touch may mean
a strong downswing inside a downtrend.

Blindly fading each touch is usually not compatible
with a robust plan in
risk-management.

3-2. Bands and swing position

Viewed through
swing-vs-correction:

Upper band breaks early in a new swing
can be a candidate signal for trend start or acceleration.
Late in a long upswing,
price pushing aggressively outside the band and snapping back inside
can hint at short-term exhaustion.

The key is:

Treat band touches and breaks not as absolute reversal signals,
but as hints about “where we are in the current swing.”

4. Bollinger Bands and Breakouts

Bollinger Bands are also helpful for evaluating
the quality of breakouts.

4-1. Squeeze → band break

A classic pattern:

Band width narrows into a squeeze,
price compresses with smaller candles and tight highs/lows,
a strong candle breaks the upper or lower band,
bands widen as volatility expands.

Here, it is more meaningful to ask:

“Is this break coming after a squeeze?” and
“Is price also breaking a key level from
s-r?”

than to simply note that price momentarily crossed a band.

4-2. Failed breakouts and traps

From a Bollinger perspective, failed breakouts often look like:

price launches through the upper band,
then quickly folds back inside the bands, and
re-enters the previous range or box.

The mirror image applies on the downside.

These patterns overlap with the failure structures
covered in failure.

Bollinger Bands help you judge:

whether price can stay outside/at the edge of the band, or
whether it immediately snaps back inside,
hinting at a failed move.

5. Combining Bollinger Bands with Other Tools

Bollinger Bands become much more powerful
when combined with other elements.

Useful combinations include:

Trend indicators (MA, MACD, ADX, etc.)
- Use trend
  to decide whether you’re in trend or range.
Oscillators (RSI, Stoch, etc.)
- Use oscillators
  to see how overbought/oversold readings interact with
  band touches and swing location.
Volume
- From volume,
  check whether band-break moves come with
  strong or weak volume.
Support, resistance, and patterns
- See whether Bollinger squeezes/expansions
  occur near key support/resistance or pattern boundaries,
  such as triangles in
  triangle.

6. Practical Checklist When Using Bollinger Bands

When a Bollinger setup catches your eye,
run through at least these questions:

What is band width doing right now?
- Is it relatively wide or narrow
  compared to recent history?
Is the market in a trend or range?
- Use
  trend and
  swing-vs-correction.
Is the band touch/break near a key level?
- See s-r for major levels.
Is this break happening after a squeeze,
or after an already extended move?
Do stop, target, and position size fit
your plan in
risk-management?

In the next volatility indicator articles:

atr
will focus on ATR as a tool for stops and position sizing, and
adr
will use ADR to estimate how much daily movement
is “normal” for a given market.

Within that bigger picture, Bollinger Bands are best viewed as:

a way to see how compressed or expanded volatility is,
and how that interacts with trend, levels, swing structure, and risk.