Bollinger Bands Strategy for Volatile Markets

Bollinger Bands are a versatile technical indicator that measures volatility and identifies potential overbought/oversold conditions. Created by John Bollinger in the 1980s, they remain one of the most widely used indicators today.

How Bollinger Bands Work

The indicator consists of three lines:

• Middle Band: 20-period simple moving average
• Upper Band: Middle band + 2 standard deviations
• Lower Band: Middle band - 2 standard deviations

The bands expand when volatility increases and contract when it decreases.

Trading Strategies

The Squeeze

When bands contract tightly (low volatility), a significant move often follows. Trade the breakout from the squeeze:

1. Identify narrow bands (historically low volatility)
2. Wait for price to break above or below the bands
3. Enter in the direction of the breakout
4. Use the opposite band as your target

Mean Reversion

In ranging markets, prices tend to bounce between the bands:

• Buy when price touches the lower band (with confirmation)
• Sell when price touches the upper band (with confirmation)
• Target the middle band or opposite band

Tips for Success

• Combine with other indicators for confirmation
• Don't trade touches blindly—look for reversal candlesticks
• Adjust settings for different timeframes
• Use in context of the overall trend