Bollinger Bands

Bollinger Bands consist of a simple moving average (SMA) and two standard deviation bands plotted above and below it. The bands expand and contract with volatility; wider bands indicate higher volatility, while narrower bands suggest lower volatility. Prices tend to stay within these bands, and a move outside can signal a strong trend or a reversal.

For a retail trader, Bollinger Bands help identify periods of consolidation ("squeeze") which often precede breakouts. Conversely, when prices touch or exceed the outer bands, it can indicate extreme price action that might revert to the mean. However, using bands in isolation can lead to false signals, as trends can "walk the band" for extended periods.