Bollinger Bands
Volatility drawn around the average.
The squeeze: bands tighten, then price expands out of them rgba(122,75,189,0.08) rgba(122,75,189,0.06) squeeze Bollinger Bands are a moving average with a band drawn two standard deviations above and below it. Because standard deviation is a measure of volatility, the bands widen when the market is turbulent and narrow when it is quiet. Upper = SMA(20) + 2 × standard deviation Lower = SMA(20) − 2 × standard deviation Bands narrow (a squeeze) Volatility has collapsed. Quiet periods precede loud ones, so this often precedes a large move. It says nothing about direction. Bands wide Volatility is high, often after a move rather than before it. Price at the upper band Statistically stretched, not necessarily about to fall. In a strong trend price walks along the band. The most misused reading is 'price touched the upper band, so sell'. In a real trend price rides the upper band for weeks. The squeeze, not the touch, is where this tool earns its keep.
Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: Charts.