Bollinger Bands are a chart indicator with a middle average and upper and lower bands. The outer bands adapt to the dispersion of recent prices, providing a relative view of price levels and volatility.
Building the bands
A common configuration uses a 20-period simple moving average of closing prices, with bands two standard deviations above and below it. If the average is $100 and the standard deviation is $3, the bands are $106 and $94. These settings are conventional defaults, not universal requirements.
As measured dispersion increases, the bands widen; as it falls, they narrow. The selected timeframe matters, and a narrow band pattern, often called a squeeze, does not by itself identify the direction or timing of a future move.
Reading contact with a band
Touching the upper band is not automatically a sell signal, nor is touching the lower band a buy signal. Price can repeatedly follow an outer band during a strong trend.
The bands are not hard price limits. Using two standard deviations does not guarantee that 95% of future prices will stay inside them. Their interpretation depends on market context and the calculation settings.