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Bollinger Bands are a volatility indicator made of three lines: a middle simple moving average (usually 20 periods) and an upper and lower band set two standard deviations away. The bands widen when volatility rises and contract when it falls, giving a visual read on how stretched or calm price is relative to its recent average. They frame likely trading ranges rather than fixed price targets.

The default 20-period moving average with bands at two standard deviations is the most widely used and works across most currency pairs and timeframes. Shorter settings react faster but produce more noise; longer settings are smoother but lag. Rather than over-optimising, keep the defaults and adjust the timeframe to your style. Test any change on historical data first, since no setting guarantees results.

A Bollinger Band squeeze occurs when the bands contract, indicating relatively low market volatility. Traders may watch for the bands to narrow and then look for a confirmed price breakout before considering a trade in the breakout direction. Because a squeeze indicates volatility compression rather than the direction of the next move, traders may use price action and momentum indicators for confirmation. Breakouts can fail or reverse, so appropriate risk management, including a stop-loss, is important when trading leveraged CFDs, where losses can be amplified.

Not on its own. In a range, a touch of the upper band can signal overbought and the lower band oversold, supporting mean-reversion trades back toward the middle line. But in a strong trend, price can “walk the band” and keep going, so a touch is not a reversal signal by itself. Confirm with trend context and other tools; band touches indicate probability, not certainty.

Both Bollinger Bands and Keltner Channels use a moving average with an upper and lower boundary, but they measure volatility differently. Bollinger Bands use standard deviation, so their width can change more noticeably as price volatility changes. Keltner Channels typically use Average True Range (ATR), resulting in smoother volatility boundaries. Some traders use the two indicators together: when the Bollinger Bands contract inside the Keltner Channels, it can indicate a period of particularly low volatility, sometimes referred to as a “squeeze.” Traders may then watch for a subsequent volatility expansion, although the direction and outcome of any breakout are not guaranteed.

The biggest error is treating every band touch as an automatic reversal, which fails in trending markets. Others include using the bands alone without confirming signals, ignoring the wider trend, and reacting to false breakouts during a squeeze. Bollinger Bands describe volatility and relative price, not guaranteed turning points. Combine them with momentum or trend tools, and always manage risk with stops on leveraged positions.