Smart position sizing & risk management

Back to glossary
Technical Indicators

Bollinger Bands

A volatility indicator with a middle SMA band and upper/lower bands set at 2 standard deviations.

What are Bollinger Bands?

Bollinger Bands consist of three lines plotted on a price chart:

  • Middle band: 20-period simple moving average
  • Upper band: middle band + 2 standard deviations
  • Lower band: middle band - 2 standard deviations

How to use them

  • Band squeeze: when bands narrow, a big move is coming (breakout signal)
  • Band walk: strong trends "walk" along the upper or lower band
  • Mean reversion: price touching the outer band often reverts toward the middle

Related Terms

ATR

Average True Range: measures volatility by averaging the true range over a set period (typically 14 days).

MACD

Moving Average Convergence Divergence: a trend-following momentum indicator showing the relationship between two EMAs.

Mean Reversion

The theory that price tends to return to its average over time: trading extreme moves back toward the mean.

RSI

Relative Strength Index: a momentum oscillator (0-100) measuring speed and magnitude of price changes.