Bollinger Bands
A moving average wrapped in a volatility-based envelope — bands that widen and narrow with how much price is actually moving.
Bollinger Bands wrap a moving average in two bands set a number of standard deviations away from it. InsiderWolf's chart defaults to the original, most widely used setup — a 20-period simple moving average with bands set 2 standard deviations out, same as most charting platforms start with. Unlike a fixed indicator scale, the bands aren't a constant width: they widen automatically when price gets more volatile and narrow when things calm down.
The basic read: price pushing into the upper band is often described as stretched to the upside relative to its own recent range, and the lower band as stretched to the downside. Unlike RSI's fixed 0-100 scale, "touching the band" means something different for a calm utility stock than for a volatile biotech, since the bands themselves are built from that stock's own recent volatility.
The 20-period, 2-standard-deviation setup is the original default — the same one InsiderWolf's chart starts with, though both numbers are adjustable.
A single touch of the upper or lower band isn't automatically a sell or buy signal — during a genuinely strong trend, price can "ride" along the upper band for an extended stretch, touching or slightly exceeding it repeatedly while the trend keeps going. Treating every touch as an automatic reversal is one of the most common Bollinger Bands mistakes.
A stock rallies hard and its price touches the upper band five separate times over three weeks, pulling back only slightly each time before continuing higher. A trader who sold on the very first touch, expecting an immediate reversal, would have missed most of the actual move. What eventually matters more is whether price closes back inside the bands and starts contracting — the bands narrowing after a wide stretch (often called a "squeeze") is watched more closely by many traders than any single touch of either band.
- The bands measure recent volatility, not direction — a band touch says price is stretched relative to its own recent range, not which way it goes next.
- A strong trend can walk along one band for an extended period without reversing — a single touch is weak evidence on its own, especially against the broader trend.
- A period of unusually narrow bands (a "squeeze") is often watched as a sign that a bigger move — in either direction — may be building, precisely because low volatility rarely persists indefinitely.