Bollinger Bands explained: the squeeze, settings 20 2 and strategies
What are Bollinger Bands?
Bollinger Bands, created by John Bollinger in the 1980s, are three lines drawn around price: a moving average in the middle and two bands a set number of standard deviations above and below it. They widen when price moves a lot and narrow when price is quiet.
The bands are a volatility tool. They show how far price is from its recent average, scaled by how volatile it has been. They do not, by themselves, tell you direction.
upper band = middle + 2 × σ(20)
lower band = middle − 2 × σ(20)
%B = (close − lower) / (upper − lower)
bandwidth = (upper − lower) / middle
Bollinger Bands settings 20 2 and the formula
The standard Bollinger Bands settings 20 2 mean a 20-period simple moving average with bands at 2 standard deviations. Standard deviation measures how spread out the last 20 closes are around their average.
If closes were normally distributed, about 95% would fall within ±2σ. Markets have fatter tails than a normal distribution, so closes outside the bands happen more often than 5% of the time, especially in trends.
Other settings
- Bollinger suggested 10 periods with 1.9σ for shorter views and 50 periods with 2.1σ for longer ones.
- Many intraday traders keep 20 2 on a 5-minute or 15-minute chart.
Two derived tools
%B places the close within the bands: 1 at the upper band, 0 at the lower, 0.5 at the middle. Bandwidth measures how wide the bands are relative to the middle, which makes squeezes easy to compare over time.
The Bollinger Band squeeze
A Bollinger Band squeeze happens when bandwidth falls to its lowest level in a long time, for example a six-month low on a daily chart or the narrowest of the week on a 15-minute chart. Volatility moves in cycles: quiet periods are often followed by expansion.
How to identify a squeeze
- Look for bands that have narrowed visibly and run almost flat.
- Check bandwidth against its own recent history.
- Mark the high and low of the compression.
The direction problem
The squeeze tells you a move may be coming, not which way. A common trap is the head-fake: price breaks one side, pulls the crowd in, then reverses through the other side. Read the guide on breakout vs fakeout. Volume, order flow and the higher-timeframe trend help judge which break is real.
Walking the bands: strength, not a reversal
In a strong trend, price can ride along the upper band for many candles, with closes at or just outside it. This is called walking the bands. It shows strength.
A close above the upper band is not, on its own, a reason to expect a fall. During a NIFTY trend day, fading every touch of the upper band is one of the fastest ways to lose. The middle band often acts as support on pullbacks during such walks.
A walk often ends when price fails to reach the band on a push, the middle band breaks, and the bands start to contract.
Mean reversion in ranges
In a range, the bands behave differently. A move to the outer band that closes back inside often rotates back to the middle band. Signs that a range reading fits:
- The middle band is flat.
- Price has touched both bands recently.
- Trend strength (for example ADX) is low.
Combining the outer band with a key level, a liquidity sweep or an RSI extreme gives the reading more weight.
A Bollinger Bands strategy framework
A useful Bollinger Bands strategy starts by deciding the regime, then choosing the reading that fits.
1. Squeeze breakout
Wait for a squeeze, mark its range, then study the break. Strong breaks tend to come with expanding bands, rising volume and aggressive order flow in the break direction. A break that closes back inside the range is a warning of a fakeout.
2. Trend pullback
In a band walk, watch pullbacks to the middle band. Holding there with price action or footprint support suggests the trend is intact.
3. Range rotation
With a flat middle band, outer-band rejections at levels may rotate toward the middle.
Whichever reading you use, define where it is wrong first; see risk management. Trading F&O carries a high risk of loss.
Worked example: NIFTY squeeze (illustration)
The numbers are an illustration.
NIFTY futures spend 11:00 to 13:30 IST in a 45-point range, 24,210 to 24,255. On the 15-minute chart, bandwidth is the lowest of the week. At 13:45 a candle closes at 24,268, above the range, with volume twice the recent average and the footprint showing stacked buying imbalances.
The bands start to widen. On the next candle, price pulls back to 24,258 and holds above the range high. A trader studying this would note that the break came with participation and held its retest. If instead price had closed back inside at 24,240, the break would look like a head-fake.
Common Bollinger Bands mistakes
- Fading every touch of the outer band in a trend.
- Assuming direction from the squeeze alone.
- Expecting 95% containment; markets are not normal.
- Using bands without knowing if the market is trending or ranging.
- Stacking Bollinger Bands, Keltner and Donchian channels that all measure the same volatility.
Bollinger Bands with other tools
Bollinger Bands answer one question well: how stretched is price relative to its recent volatility? Other tools answer the questions they cannot.
Direction from structure
Before reading any band touch, look at market structure. Higher highs and higher lows with a rising middle band suggest the upper band walk is the reading to expect. A change of character near the outer band adds weight to a range or reversal reading.
Momentum from RSI or MACD
Bollinger himself suggested pairing the bands with a momentum indicator that is calculated differently. A tag of the upper band with RSI making a lower high (divergence) is a different picture from a tag with RSI making new highs. MACD serves the same purpose.
Participation from volume
Squeeze breaks that come with rising volume and positive delta in the footprint tend to carry more weight than breaks on thin volume. OBV and the cumulative delta line help here.
Volatility from ATR
Bandwidth and ATR both measure volatility. ATR is handy for sizing a stop distance, while bandwidth is handier for spotting compression. Using one for each job avoids duplicate readings.
Timeframe
A squeeze on the daily chart can take days to resolve; a squeeze on the 5-minute chart may resolve within the hour. Check a higher timeframe so a small intraday squeeze does not fight a larger trend.
Seeing it on the TradingMarble chart
The TradingMarble chart can plot Bollinger Bands on NIFTY, BANKNIFTY and F&O charts next to the footprint and volume profile. That makes it easy to see whether a band break came with real buying or selling inside the candles. See features for the full list of tools.
Bollinger Bands checklist
- Is the middle band sloping or flat?
- Is bandwidth near a low (squeeze) or expanding?
- Is price walking a band or rejecting it?
- Does a break come with volume and order flow?
- Is there a nearby level that adds meaning?
Bollinger Bands are at their best as a volatility map; combine them with structure and VWAP for direction.
Frequently asked questions
What are Bollinger Bands?
Bollinger Bands are a volatility indicator made of a 20-period simple moving average with an upper and lower band two standard deviations away. The bands widen when volatility rises and narrow when it falls. They show how stretched price is relative to its recent average, not which direction it will go.
What is the Bollinger Band squeeze?
A squeeze is when the bands narrow to their tightest width in a long period, showing compressed volatility. Expansion often follows, but the squeeze does not show direction. Traders wait for the break and check volume, order flow and trend to judge whether it is genuine or a head-fake.
What are the best Bollinger Bands settings?
The default 20 2 setting, a 20-period SMA with bands at 2 standard deviations, is the most widely used and works on daily and intraday charts. John Bollinger suggested about 10 periods with 1.9σ for shorter views and 50 periods with 2.1σ for longer ones.
Is touching the upper Bollinger Band bearish?
Not by itself. In a strong uptrend, price often walks along the upper band, which shows strength. A touch matters more in a range, with a flat middle band, especially at a key level. Context decides the meaning.
What is %B in Bollinger Bands?
%B shows where the close sits within the bands: (close − lower band) / (upper band − lower band). A value of 1 is at the upper band, 0 at the lower band and 0.5 at the middle. Values above 1 or below 0 mean price closed outside the bands.
Do Bollinger Bands work for intraday trading?
Yes, many traders use 20 2 Bollinger Bands on 5-minute or 15-minute NIFTY and BANKNIFTY futures charts to spot squeezes and band walks. They work best combined with VWAP, key levels and order flow, and with a clear risk plan.