What is Bollinger Band?
Crypto Glossary Definition
A technical analysis indicator developed by John Bollinger which helps measure the volatility of a given market.
Why Bollinger Band Matters
Bollinger Bands plot a moving average with upper and lower bands based on price volatility — when the bands squeeze tightly together it often signals low volatility that may precede a sharp breakout in either direction, a pattern technical traders watch closely.
Bollinger Band in Practice
A technical analyst studying a token's four-hour chart notices its price has been trading in an unusually narrow range for several days, with the upper and lower Bollinger Bands, plotted around a moving average based on recent price volatility, squeezing tightly together in a pattern often nicknamed a volatility squeeze. Having seen this setup before, the analyst knows that such tight compressions frequently precede a sharp breakout, though the bands themselves give no indication of which direction that move will take, only that a larger move is becoming statistically more likely the longer the squeeze persists. They set price alerts just above and below the current range rather than guessing a direction outright, waiting for the market to reveal its hand. A few days later, the price breaks decisively upward, closing outside the upper band on strong volume, and the analyst enters a position, using the same bands going forward to gauge whether the move is overextended, since price frequently touching or exceeding the upper band repeatedly can also signal an asset is due for a pullback rather than continued acceleration. Comparing notes with another trader who relies purely on price action without indicators, the analyst acknowledges Bollinger Bands aren't predictive on their own, but finds them a useful visual shorthand for volatility conditions that would otherwise require manually tracking price deviation.
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