Crypto glossary
Bollinger Bands
Bollinger Bands are volatility bands drawn a set number of standard deviations above and below a moving average, widening and narrowing as volatility shifts.
Developed by John Bollinger in the 1980s, the indicator has three lines: a simple moving average, by default over 20 periods, and two bands placed two standard deviations above and below it. Because the distance depends on recent volatility, the bands widen during sharp moves and contract when the market goes quiet.
Two patterns are widely watched in crypto. A squeeze, when the bands become unusually narrow, signals compressed volatility that often precedes a large move, though not its direction. A band walk, when price keeps hugging the upper or lower band, signals a strong trend rather than an imminent reversal. Bitcoin's weekly and daily squeezes are frequent talking points before breakouts.
A common mistake is treating a touch of the upper band as an automatic sell signal or the lower band as a buy. In trending markets price can ride a band for weeks. Bollinger himself recommends combining the bands with other indicators instead of using them alone.
Example
After a month of sideways trading, BTC's daily Bollinger Bands are the narrowest in a year. Two days later the price breaks out 8% higher and the bands expand sharply.