Bollinger Bands for Reversals, Squeezes, and Swing Trading

Summary

The article explains Bollinger Bands as a moving average surrounded by upper and lower bands set two standard deviations away. It also introduces band width as a way to identify volatility contraction, or a squeeze, which may precede a breakout but does not indicate its direction. The strategies discussed include treating band breaches as possible reversal signals, looking for double bottoms or tops near the bands, and using the middle average or opposite band as an entry or exit reference for swing trades.

Illustrative chart examples describe price patterns, but the text does not provide a systematic test of profitability. It notes that equal weighting of observations in the moving average can make the indicator slow to reflect recent events and recommends using other indicators alongside it. Band touches and breaks are signals to investigate rather than reliable forecasts; news and other market forces can drive price moves independently of the indicator.

Key ideas

• The standard setup uses a moving average with upper and lower bands two standard deviations away.
• Band width can reveal low-volatility squeezes, although it does not predict breakout direction.
• Possible setups include reversals, double tops or bottoms, and swing trades between the average and bands.
• Band breaches may reflect news or other forces, so they are not dependable reversal signals by themselves.
• The article recommends pairing the indicator with other tools and provides no systematic performance evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.