Reading Bollinger Bands as a volatility display

BabyPips describes Bollinger Bands as a central moving average with upper and lower lines based on a measure of price dispersion. A common configuration uses a twenty-period simple average and bands two standard deviations away, although settings can vary.

The display responds to changing volatility: bands tend to widen when prices vary more and narrow when variation falls. A price near an outer band is therefore being compared with a recent distribution, not being certified as cheap or expensive.

The lesson discusses familiar interpretations such as a squeeze and a bounce, but stretched prices and apparent breaks can persist or fail. A reproducible review records the settings and distinguishes the observation from the proposed explanation. The indicator summarizes past prices; its bands are not guaranteed limits, and a quiet period does not establish the direction of a later move.