Bollinger bands are used to measure a market’s volatility. Basically, this easy to learn indicator tells us whether the market is quiet or whether the market is volatile. When the market is quiet, the bands contract; and when the market is crazy, the bands expand. One thing you should know about Bollinger Bands is that price tends to return to the middle of the bands.

That is the whole idea behind the Bollinger bounce. The reason these bounces occur is that Bollinger Bands act like mini support and resistance levels. The longer the timeframe you are in, the stronger these bands are. Many traders have developed systems that thrive on these bounces, and this strategy is best used when the market is ranging and there is no clear trend.

Riding the Bands Strategy is another great interpretation of Bollinger Bands which will keep you in the market to maximize profits. The single biggest mistake that many Bollinger band novices make is that they sell when the price touches the upper band or buy when it reaches the lower band. Bollinger himself stated that a touch of the upper band or lower band does not constitute a Bollinger band signals of buy or sell.

And then we have to Bollinger Band Squeeze. The idea, using daily charts, is that when the indicator reaches its lowest level in 6 months, you can expect the volatility to increase. This goes back to the tightening of the bands that I mentioned above. This squeezing action of the Bollinger band indicator foreshadows a big move. You can use additional signs such as volume expanding, or the accumulation distribution indicator turning up. These other indications add more evidence of a potential Bollinger band squeeze.

The leveraged trading products available on this website are not appropriate for everyone. It is possible for losses to exceed your account balance. Do not trade with funds you cannot afford to lose and seek advice if you do not understand the risks.