Bollinger Bands — Intermediate — Growth Capital Group

The Concept

What Bollinger Bands Actually Measure

A Bollinger Band is three lines plotted around price: a middle band (typically a 20-period simple moving average), an upper band (the middle band plus 2 standard deviations of recent price), and a lower band (the middle band minus 2 standard deviations). Unlike RSI or MACD, Bollinger Bands measure volatility, not momentum.

Standard deviation grows when price swings widely and shrinks when price is calm. So the bands themselves widen during volatile stretches and narrow during quiet ones — they physically expand and contract around price as volatility changes.

The two classic readings: a squeeze (bands pulled tight together) suggests volatility has compressed and often precedes a sharp move in either direction. Price touching or piercing a band doesn't automatically mean "overbought" or "oversold" the way RSI does — in a strong trend, price can ride along the upper (or lower) band for an extended stretch.

🎢 Bollinger Bands Squeezing, Then Expanding

Notice how tightly the upper and lower bands (purple, dashed) squeeze together in the middle of the chart, right before price breaks out and the bands widen dramatically to contain the new, more volatile move.

Watch For This

5 Things to Know About Bollinger Bands

Bands measure volatility, not momentum or direction — unlike RSI or MACD, they say nothing about whether price is likely to go up or down, only how much it's likely to move.
A squeeze often precedes a big move — but it doesn't tell you which direction that move will be, only that one may be coming.
Riding the band isn't automatically a reversal signal — in a strong trend, price can walk along the upper or lower band for an extended stretch without reversing.
The bands adapt automatically — because they're based on standard deviation, they widen and narrow on their own as volatility changes, with no manual adjustment needed.
Bandwidth (the gap between bands) is a useful standalone measure — it can be plotted on its own to spot squeezes more precisely.

Put It Into Practice

4 Things to Check When Reading Bollinger Bands

🤏 Watch for the Squeeze

The tighter the bands get, the more likely a significant move is building — though not the direction.

📈 Check the Trend First

Price hugging the upper band in an uptrend is strength, not automatically "overbought."

🔗 Pair It With Momentum

Combine a band touch with RSI or MACD to judge whether the move looks stretched, not just wide.

📊 Watch for the "Walk"

Price repeatedly touching one band without reverting to the middle band signals sustained trend strength.

Worth knowing: Bollinger Bands describe how much price has recently moved, not which direction it will move next. A squeeze flags rising odds of a breakout, but the breakout can go either way — pair it with trend and momentum tools rather than trading it alone.

Activity

Try It Yourself: Band Calculator

Enter the 20-period moving average and the standard deviation of recent price — see the resulting upper and lower bands, and where the current price sits.

20-period moving average ($)

Standard deviation ($)

Current price ($)

Model: upper band = SMA + (2 × standard deviation); lower band = SMA − (2 × standard deviation). Bandwidth = (upper − lower) / SMA, a simple way to compare how tight or wide the bands are relative to price.

End of Lesson