105 Bollinger bands

This indicator calculates the standard deviation in price over a prior period of time and it adds it to the mean price. In general, when price is outside 2 standard deviations, prices are assume to be extreme rare.

In the figure below, 1 (orange) and 2 (blue) standard deviation bands are shown. Clearly, when price trends between the 1 and 2 upper standard deviations, the price is an up-trend.

Figure 12.7: Bollinger bands

When the price becomes consolidated within narrow BB bands, it is common the case that the price will break in the direction of the first candle that surpasses the bands. This is called Squeeze.

If you think about the philology of this pattern, bulls and bears are fitting equally hard evidence by low stock price variability (Specially if volume is being traded in high numbers). As soon as one group takes the advantage (i.e., breaking above or below the BBands), the other group gives up, causing a breakout price.

Figure 12.8: Bollinger bands squeeze