Bollinger Bands is a technical analysis tool used by traders to measure the volatility of the market and look at the current price levels versus prior ranges in which prices have traded.
The chart below shows that during times of reduced market fluctuations, the bands narrow and move closer together, while during periods of heightened market volatility, the bands widen and spread further apart.
It may be simpler to look at Bollinger bands as a form of support and resistance.
Bollinger bands show that when the price moves within the band, it usually returns to the middle. This is called the Bollinger Bounce.
Often the bands can be seen to “squeeze” together as seen above.
Many traders see a band squeeze as an indication to a pending breakout in the market. If the graph is seen to move towards the upper band, an upwards trend is usually expected, and vice versa.
It is not an often occurrence to see a Bollinger squeeze.
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