A Bollinger Bands strategy uses a moving average with two volatility bands around it to judge whether a market is quiet, trending or stretched, and then picks the approach that suits that state. In our experience the bands are most useful for reading volatility, not for calling tops and bottoms.
Quick answer: what is a Bollinger Bands strategy?
A Bollinger Bands strategy reads a 20-period moving average with bands two standard deviations above and below it. Narrow bands (a squeeze) warn that a bigger move may be coming, price riding one band shows a strong trend, and touches of the bands in a range can be faded back to the middle.
How Bollinger Bands are built
The basics, and the original desk view of the bands, are in our best technical indicators for beginners. Here is the short version you need for the strategies below.
- Middle band: usually a 20-period simple moving average.
- Upper and lower bands: the middle band plus and minus two standard deviations of the closing price.
- Band width: the distance between the outer bands. It widens when price swings grow and narrows when they shrink.
Because the bands are built from volatility, a touch of the upper band does not mean “overbought” by itself. It means price has moved further than usual for the recent period, which can happen at the start of a trend just as easily as at the end of one.
Choosing a Bollinger Bands strategy for the market state
Most guides list Bollinger setups without saying when to use which. We start every chart by asking which of three states the market is in, because each needs a different approach.
| Market state | What the bands show | Approach |
|---|---|---|
| Quiet | Bands narrow and flat | Prepare for a squeeze breakout |
| Trending | Bands sloping, price hugging one band | Buy or sell pullbacks to the middle band |
| Ranging | Bands flat, price moving edge to edge | Fade band touches back to the middle |
The common error is using the range approach in a trend. Fading a band touch while the bands slope steeply means trading against the strongest force on the chart.
The Bollinger Band squeeze
A Bollinger Band squeeze is a period when band width shrinks to one of its narrowest readings in recent months. Quiet markets do not stay quiet for ever, so a squeeze often comes before a larger move. What it does not tell you is the direction.
How we trade the squeeze
- Spot the squeeze: the bands are visibly narrower than at any point in the recent past.
- Mark the range that price has held during the squeeze.
- Wait for a close outside that range, not just a wick through a band.
- Prefer a retest of the broken edge before entering, as in our guide to the breakout and retest strategy.
- Stop on the other side of the range or the retest low or high.
Squeezes are prone to a “head fake”: a first break one way that quickly reverses and runs the other. Waiting for a close and a retest filters some of these out. Our guide to trading breakouts and avoiding false ones covers the wider topic.
Walking the bands in a trend
In a strong trend, price can press against the upper or lower band for many candles. Traders call this walking the bands. It is a sign of strength, not exhaustion, and it is where band-fading beginners lose the most. A smoother alternative built on ATR is covered in our Keltner channel strategy guide.
Our approach is to let the outer band show the trend and use the middle band for entries. In an uptrend, we wait for price to pull back to the middle band, hold there, and print a bullish candle before buying. The trend is in doubt once price closes firmly beyond the middle band and the bands stop sloping. The same logic sits behind our trend following strategy.
Fading band touches in a range
When the bands are flat and price swings from one side to the other, a touch of a band can be faded back towards the middle. This is mean reversion, and our guide to mean reversion trading explains it in depth. The key rules are short:
- Flat bands only. If they start to slope or widen fast, stand aside.
- Wait for rejection, such as a pin bar at a key level, rather than selling the touch itself.
- Target the middle band, not the opposite band.
- Stop beyond the extreme of the rejection candle.
Worked example: a hypothetical squeeze breakout
All figures are hypothetical. On a £5,000 account we risk 1% per trade, which is £50. A stock index has drifted sideways for two weeks, and on the 1-hour chart the bands are the narrowest they have been in months.
- Range: price has held between 7,500 and 7,540 during the squeeze.
- Break: a candle closes at 7,552, outside the upper band and above the range.
- Retest: price dips back to 7,542 and a bullish candle closes at 7,548; we buy there.
- Stop: 7,528, below the retest low and back inside the range, so 20 points. At £2.50 per point, that is £50.
- Exit plan: take half at 7,588 (40 points, £50 on that half), then trail the rest behind the middle band.
If price falls back into the range and hits 7,528, it was a head fake and we take the £50 loss. CFDs and spread bets are leveraged, and a fast market can gap through a stop and lose more than planned. For sizing, see our guide on how much to risk per trade; for a stop distance that matches volatility, see the average true range indicator.
Common mistakes with Bollinger Bands
- Selling every upper band touch in an uptrend, when it often means strength.
- Guessing the squeeze direction before price breaks out.
- Adding RSI, stochastics and MACD on top, which mostly repeat the same price information; our MACD trading strategy guide shows where MACD adds a different view.
- Changing settings to fit the last few trades.
- Ignoring the bigger picture. John Bollinger himself, quoted in a CFA Institute article on fundamental vs technical analysis, argues for combining the best fundamental and technical tools rather than relying on one approach.
Frequently asked questions
What are the best Bollinger Band settings?
The common default is a 20-period average with bands at two standard deviations, and we stick with it. Changing the numbers moves the bands but does not change how you should read the market state.
Does touching the upper band mean sell?
No. In a range it may be a fading opportunity after a rejection, but in a trend price can walk the upper band for a long time. Read the slope of the bands first.
Which way will price break after a squeeze?
The squeeze itself does not say. We wait for a close outside the range, ideally with a retest, and accept that some breaks will reverse.
Do Bollinger Bands work for forex and day trading?
They can be applied to any market and timeframe. Lower timeframes are noisier, so squeezes and band touches occur more often and need stricter filters.
Next steps
Bollinger Bands work best when you can already spot quiet, trending and ranging markets by eye, so pair this with our range trading strategy for sideways markets and our view of price action vs indicators.
Price action with technical analysis, and discovering the beginning of new trends, are both part of our price action trading course, and the basics section is free to start.
This article is for education only and is not financial advice. Trading leveraged products such as CFDs and spread bets carries a high risk of losing money.
