Bollinger Bands
Boll.
What it is
Bollinger bands frame the price with an upper and lower band, computed from the 20-day moving average and 2 standard deviations. They show the "normal" zone where price trades 95% of the time.
How to read it
When price touches the upper band, it's statistically "high" relative to the last 20 days — possible overbought. Conversely for the lower band. When the bands tighten (compression), a volatility explosion is likely in the days ahead.
Common reference points
- Price at floor — bounce possiblePrice ≈ lower band
- Price in the channelLower < Price < Upper
- Price at ceiling — pause likelyPrice ≈ upper band
- Compression — explosion imminentVery tight bands
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
Bands can stay glued to price for long stretches in strong trends (price "walks" on the upper band in bull runs). Mean-reversion tool, less useful in trending markets.
Other measures — Technical
Educational content. Polaris is not a registered investment adviser and makes no recommendation.