Background
John Bollinger is the creator of Bollinger Bands — arguably the most widely used technical indicator in the world. His bands (20-period SMA with 2 standard deviation envelopes) are displayed on virtually every charting platform globally. He developed the bands in the 1980s as a way to visualise volatility and create adaptive support/resistance levels.
Core Methodology
Bollinger Bands automatically expand and contract with market volatility. When bands narrow (a 'squeeze'), it signals low volatility that typically precedes a large move. When price touches or exceeds the outer bands, it signals an overextended condition. Bollinger's key insight: support and resistance are not static — they should adapt to current volatility.
Key Trading Rules
- The Squeeze: when Bollinger Bands narrow to their tightest in 6+ months, prepare for a major breakout
- Bands are not buy/sell signals alone — a touch of the upper band in a strong uptrend means strength, not overbought
- Walking the bands: in strong trends, price 'walks' along the upper or lower band — this is confirmation, not reversal
- W-bottoms and M-tops: double bottom/top patterns confirmed by band interaction (second low doesn't touch lower band = bullish divergence)
- Use %B indicator: (price - lower band) / (upper band - lower band) — normalises price position within bands
- Bandwidth: (upper band - lower band) / middle band — quantifies the squeeze objectively
Key Concepts
Books & Resources
Bollinger on Bollinger Bands by John Bollinger. BollingerBands.com. Free educational resources on his website.