Glossary · Indicators

Bollinger Bands

A volatility envelope: a 20-period moving average with bands two standard deviations above and below, widening and narrowing with volatility.

By Sky Trade editorial teamUpdated November 5, 2026

Bollinger Bands, created by John Bollinger, consist of a middle band (usually a 20-period SMA) and two outer bands set a number of standard deviations away, usually two. When volatility rises the bands widen; when it falls they contract.

They are used in two almost opposite ways. In ranges, traders treat touches of the outer bands as stretched prices that may return to the middle. In trends, price can “walk the band”, hugging the upper band candle after candle, and fading those touches loses repeatedly. Knowing which regime you are in matters more than the bands themselves.

A third use is the squeeze: unusually narrow bands signal compressed volatility that often comes before a bigger move, without saying which way.

A frequent misconception is that price stays inside the bands 95% of the time and therefore must come back. Market returns aren't normally distributed, and closes outside the bands are perfectly ordinary in trending conditions.

In the Sky Trade terminal Bollinger Bands are in the trend group of indicators. The full guide is Bollinger Bands explained.

Example

EUR/USD's 20-period SMA on M5 is 1.0850 and the standard deviation 4 pips, so the bands sit at 1.0842 and 1.0858. A close at 1.0861 is outside the upper band, and in a trend more such closes can follow.

Learn more in the academy

Bollinger Bands explained: squeeze, band walks and mean reversion
How Bollinger Bands are built from a 20-period SMA and 2 standard deviations, what a squeeze means, how bands are walked in trends and when to fade them.

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