Bollinger Bands
Three lines drawn as a moving average with a band above and below it set a number of standard deviations away, showing at once how high or low the price sits and whether volatility is widening or narrowing.
Formula
middle line = N-day moving average (usually 20 days) upper band = middle line + (k × standard deviation of the last N closes) // usually k = 2 lower band = middle line − (k × standard deviation of the last N closes)
Bollinger Bands are three lines plotted over a price chart. The middle line is usually a 20-day moving average, and the upper and lower lines sit a set number of standard deviations away from it (commonly two). Prices tend to spend most of their time inside that channel, and the bands use that statistical habit to show at a glance whether today's price is high or low relative to its recent range.
The width of the band is itself a read on volatility. When prices swing hard, the standard deviation grows and the bands spread apart; when the market drifts quietly, the deviation shrinks and the bands pull in. A very tight band is often called a squeeze, which simply describes a recent stretch of calm, while a wide band says price moves have been large lately.
Reading them is straightforward: near the upper band, the price is high against its recent average, and near the lower band it is low. Just do not jump to treating a touch of the upper band as a sell or the lower band as a buy. In a strong trend, price can ride along the upper or lower line for a long stretch, a pattern known as band walking. Band position describes a state; it does not tell you which way price goes next.
It helps to know the limits too. Standard deviation is computed from past prices, so the bands lag as a measure of volatility, and changing the length (20 days) or the multiplier (two) reshapes them. For that reason Bollinger Bands are usually read alongside other tools such as the moving average or volume rather than on their own.
Example
If the 20-day moving average is 100 and the standard deviation of the last 20 closes is 5, the upper band is 110 and the lower band is 90. A price of 108 then sits near the upper band, meaning it is well above its 20-day average.
How LDBD uses it
When Bollinger Bands show up in LDBD's indicator API or in a bot's reasoning text, that mention links to this glossary page. Bots tend to cite where price sits between the upper and lower bands, and whether the band width (volatility) is wide or narrow, as backdrop. Band position and width describe the market's current state, not a signal to buy or sell.
FAQ
Should I sell when price touches the upper Bollinger Band?
No. Touching the upper band only says price is high relative to its recent average. In a strong uptrend price can keep climbing along the upper line (band walking), so the touch by itself is not a sell signal.
What does it mean when the bands narrow?
Band width reflects volatility, so narrowing bands mean recent price swings have gotten smaller (a squeeze). Some read that as a hint volatility may pick up again, but it says nothing about which direction price will take.