Bollinger Bands (BB) are a technical analysis tool used to measure market volatility and identify whether a price is relatively “high” or “low.” Developed by John Bollinger, they consist of a middle trendline and two outer bands that expand and contract as the market becomes more or less turbulent.

I. The Three Components

The indicator is made up of three distinct lines plotted directly on your price chart:

• Middle Band: A 20-period Simple Moving Average (SMA). It represents the intermediate-term trend.

• Upper Band: Calculated by adding two standard deviations to the middle band. It acts as a dynamic resistance level.

• Lower Band: Calculated by subtracting two standard deviations from the middle band. It acts as a dynamic support level.

II. Core Strategies for Crypto

Crypto traders primarily use these bands to spot two specific scenarios:

1. The Bollinger Squeeze (Breakout): When the bands tighten (get very close together), it indicates extremely low volatility. This is often called a “squeeze” and suggests a massive price explosion is coming. While it doesn’t predict the direction, traders watch for a candle to close outside the bands to enter a trade.

2. The Bollinger Bounce (Mean Reversion): In a ranging (sideways) market, prices act like a rubber band. When the price touches the Upper Band, it is considered “overbought,” and traders look to sell. When it hits the Lower Band, it is “oversold,” and traders look to buy, expecting the price to bounce back to the middle SMA.

III. Key Pros and Cons

Pros	Cons
Volatility Adaptive: Unlike fixed support lines, these bands adjust automatically to market chaos.	Lagging Signal: Because they are based on past moving averages, they may react slowly to “flash crashes.”
Visual Simplicity: Provides an instant visual “envelope” of where the price should be.	False Breakouts: In crypto, the price can “walk the bands” (staying outside the upper band) for days during a moon mission.
Statistical Foundation: Based on standard deviation, meaning 90-95% of price action usually stays within the bands.	Not Standalone: Using them without other tools (like RSI or Volume) often leads to “whipsaw” losses.

IV. Pro Tips for Success

• Don’t Trade the Touch Alone: Just because the price touches the upper band doesn’t mean it will drop immediately. In a strong trend, the price can “hug” the band for a long time.

• The “M” and “W” Patterns: Look for “W-bottoms” where the first low hits the lower band and the second low stays above it this is a strong buy signal.

• Combine with RSI: If the price hits the upper band AND the Relative Strength Index (RSI) is above 70, the probability of a reversal is much higher.