Bollinger Bands, developed by John Bollinger in the 1980s, plot three lines. The middle is a simple moving average, conventionally twenty periods. The outer two sit a number of standard deviations above and below it, conventionally two. Because standard deviation is calculated from the same window, the envelope widens when the market becomes volatile and narrows when it settles.
That adaptation is the point. A move of a given size is unremarkable in a violent market and extraordinary in a quiet one, and the bands express the difference automatically. Price near the upper band means price is high relative to its own recent behaviour — a statement in the market's current units rather than in absolute terms.
The most common misreading is to treat a touch as a signal. Bollinger has said repeatedly that it is not. In a strong trend price can ride the upper band for an extended run, and each touch is a description of a market that is trending. The bands describe where price sits within its recent distribution; they contain no information about what happens next.
The reading with more content is the squeeze. When the bands contract sharply, realised volatility has fallen, and volatility is the one property of markets that reliably clusters and mean-reverts: quiet periods tend to be followed by active ones. A squeeze therefore says a larger move is more likely than usual. It emphatically does not say in which direction, and trading a squeeze directionally is guessing with extra steps.
The two-standard-deviation convention implies a normal distribution, and returns are not normally distributed — crypto returns least of all. Large moves happen far more often than the model implies, so a three-standard-deviation excursion is not the once-in-years event the statistics would suggest. Treat the bands as a scaled description of recent range, not as a probability statement.
In practice they are most useful as context for other observations. A reversal signal at a band, in a market that has been ranging, on volume that confirms participation, is a different observation from the same signal in the middle of the envelope during a trend. As with every indicator on this list, the bands describe the past accurately and forecast nothing.