Bollinger Bands: volatility envelope, squeeze, and the band walk

What the bands actually represent

The middle band is a 20-period simple moving average. The upper band is two standard deviations above it, the lower band two below. Statistically, about 95% of recent price action falls inside the bands. When price punches through, it means recent volatility has been understated — not that price is "wrong".

Bands widen and contract on their own. A long period of contraction — a squeeze — means recent volatility has been low. Squeezes are followed by expansions, but they don't pre-announce direction.

The band walk and the false signal trap

In a strong trend, price walks along the upper or lower band for many candles. This is normal. The naive read ("price is touching the upper band, so it's overbought") loses money fast in trending markets. Bollinger Bands are best paired with a trend indicator (MACD, moving averages) so you know whether you're in a range-bound market where mean-reversion to the middle band is the base rate, or in a trending market where the band walk is the base rate.

How Signodex uses Bollinger Bands

Signodex reports the band positions and the bandwidth (a normalized squeeze metric) on every timeframe. The AI Signal Analyst weighs them alongside RSI and MACD to characterise whether the asset is in a volatility expansion, a contraction, or a band walk — never as a buy or sell instruction.