Bollinger Bands: squeezes and breakouts

June 2, 2026 · 4 min read

Bollinger Bands create a channel around a stock price. The bands widen when volatility increases and narrow when volatility decreases. The middle band is the 20-day Simple Moving Average. The upper band is the middle band plus two standard deviations. The lower band is the middle band minus two standard deviations. When price touches or drops below the lower band, the stock is at the bottom of its normal range. Statistically, it tends to bounce back to the middle. This is a buy signal, especially if RSI confirms oversold conditions. When price hits the upper band, the stock is at the top of its range. Consider taking profits. The Bollinger Squeeze is one of the most powerful signals. When bands narrow significantly, volatility has compressed. Like a coiled spring, the stock is about to make a big move in either direction. TradewithAI detects squeezes automatically and alerts you. To trade a squeeze, wait for the price to break out of the narrow bands. If it breaks upward with high volume, buy. If it breaks downward, stay away. The direction of the breakout determines the trade, not the squeeze itself.