Unit 1 · Level 3 · Indicators
Bollinger Bands: volatility's map
Bollinger Bands draw a moving average with two bands around it, set at ±2 standard deviations of recent prices. Calm market: bands squeeze tight. Wild market: bands balloon. Price touching a band isn't a signal by itself. It just tells you how unusual the move is.
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What this lesson covers
The squeeze
The bands' most loved pattern: when they contract to their tightest in months, volatility is coiling like a spring. Squeezes don't say WHICH way. They say a big move is loading. Traders prepare both scenarios and let the break pick the direction.
What you get asked
What do the bands actually measure?
If prices were normally distributed, ~95% of action would sit inside ±2 standard deviations; in real markets it is closer to ~90%. Touching a band means 'stretched by recent standards', nothing more, nothing less.
Match the band behavior to its message
'Walking the band' (candle after candle hugging the upper band) is what powerful trends look like. Fading it blindly is the Bollinger version of shorting RSI 75.
A Bollinger squeeze predicts a burst of ___, not its direction.
Springs launch whichever way the cage breaks. Plan both sides; trade the confirmed one; stop goes beyond the failed side.
Your kit so far: RSI, MACD, Bollinger. Which combination is redundant, and why?
Both are momentum; agreement is expected, not confirmation. Two momentum tools nodding together is one vote counted twice. Real confluence mixes FAMILIES: structure + trend + momentum + volatility. Choose one per family and you're armed. 🐜
The rest of this unit
RSI, MACD, Bollinger Bands, and confluence: interrogating witnesses without obeying them.