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Volatility envelopes that expand and contract - showing when markets are quiet and when they're about to move
Bollinger Bands are volatility bands placed above and below a moving average. Developed by John Bollinger in the 1980s, they automatically adjust to market conditions - widening during volatile periods and narrowing during calm periods.
The key insight: volatility is cyclical. Low volatility leads to high volatility, and vice versa. When the bands squeeze tight, a big move is often coming. When they expand wide, the move is often exhausting.
About 95% of price action occurs within the bands (assuming normal distribution). When price touches or exceeds the bands, it's statistically unusual - but that doesn't automatically mean reversal. Context matters.
Key Signals ◇ The Squeeze COILING... Bands contract tightly. Volatility is extremely low. This is the calm before the storm - a big move is building. Direction unknown.
BREAKOUT! Bands expand rapidly. Volatility exploding. The move has begun. Ride it - don't fade it. Expansion often continues longer than expected.
Settings The default settings (20, 2) work well for most situations. Adjustments change sensitivity:
The squeeze is the setup; the expansion is the trade. When the bands get unusually tight, don't predict direction — wait for the breakout and ride the expansion. Most of your profit comes from the first move out of the squeeze.
Indicators confirm what price action shows. They don't replace it. Never trade based on an indicator signal alone. Always combine with chart structure, pattern recognition, and volume analysis.
The Academy teaches when to use this indicator, when to ignore it, and how to combine it for high-probability setups.
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