In plain English
What Bollinger Bands means
The bands expand when recent price variability rises and contract when it falls. They therefore show whether a price is relatively high or low compared with its recent behavior, rather than establishing an absolute fair value. Price can remain near an upper or lower band during a strong trend, so a band touch alone does not establish a reversal.
Why it matters
Bollinger Bands combine a trend reference, the middle average, with a volatility-sensitive range. They can help identify changing conditions, such as unusually narrow or wide bands, but their usefulness depends on the market, timeframe, parameters, and other evidence. Standard deviation does not make future price outcomes normally distributed.
Example
Suppose a 20-period moving average is 1.2000 and the 20-period standard deviation is 0.0040. Using a two-standard-deviation setting, the upper band is 1.2080 and the lower band is 1.1920. These simplified bands describe a recent relative range; they do not create support or resistance that price cannot cross.
Quick answers
Common questions
What causes Bollinger Bands to widen?+
The bands widen when the standard deviation used in their calculation increases, which generally follows larger recent price variation. They narrow when recent price variation declines.
Are 20 periods and two standard deviations mandatory?+
No. They are widely used defaults, not universal requirements. Changing the lookback or multiplier changes the sensitivity and width of the bands, so results should be interpreted with the selected settings in mind.
Sources