Bollinger Bands

BB applies in three completely different market contexts: 1) RANGING MARKET (the simplest context): Price bounces between the upper and lower band like a ping-pong ball. The upper band is the sell zone, the lower band the buy zone. The middle band (SMA 20) acts as intermediate support/resistance. WARNING: this works ONLY when the bands are flat and parallel. 2) TRENDING MARKET ('Walking the Band'): In a strong uptrend, price 'walks' along the upper band, touching or exceeding it repeatedly. Selling every touch of the band would be a serious mistake. The inverse applies for a downtrend. Closing outside the band for multiple consecutive candles is a signal of extreme trend strength. 3) BOLLINGER SQUEEZE — the most powerful setup: When the bands narrow to their minimum (very low Bandwidth), the market is in a phase of extreme compression. Energy is building for an explosive breakout. Before the squeeze, the market makes very small moves. After the squeeze, the breakout can be very large. PROBLEM: the bands don't tell you which direction the breakout will go. For this, combine with the Keltner Channel (LazyBear's Squeeze Momentum) which also uses momentum direction. 4) PRICE OUTSIDE THE BANDS: A close outside the bands (not just a wick) indicates a statistically anomalous move. In a breakout, the first close above the upper band is often the entry point. In reversals, price returns inside the bands and then heads toward the opposite band (100% mean reversion). Practical tips: the default (20, 2σ) works well on all timeframes. Some traders use (20, 1σ) for tighter bands and more signals. %B above 1.0 means price is outside the upper band — useful for screening.