Bollinger Bands wrap a 20-period moving average with bands two standard deviations above and below it. Because the bands widen when volatility rises and tighten when it falls, they tell you two things at a glance: where price is relative to "normal", and whether the market is coiling or expanding. That gives you two very different strategies — and using the wrong one for the current market is the classic Bollinger mistake.

Strategy 1: Mean reversion (for ranges)

In a sideways market, touches of the outer bands tend to snap back toward the middle.

• Setup: market clearly ranging — flat 20 MA, price oscillating both sides of it
• Entry (long): candle closes below the lower band, then the next candle closes back inside the bands — enter on that close. Stronger with RSI < 30 or a hammer candle at the touch
• Stop-loss: below the reversal candle's low
• Target: the middle band (20 MA) — take it and leave; extending targets in a range gives profits back
• Short: mirror at the upper band

Strategy 2: The squeeze breakout (for new trends)

When the bands contract to their tightest levels in weeks — the squeeze — volatility is loading for an expansion.

• Setup: band width at a visible multi-week low
• Entry: candle closes outside the squeeze range in either direction, with expanding band width
• Stop-loss: the opposite side of the squeeze range
• Exit: trail below the 20 MA, or use a measured move; squeezes often start real trends, so let it run
• This is a volatility version of the breakout strategy — the same false-breakout cautions apply

The trap: walking the band

The expensive error is applying Strategy 1 during a trend. In strong trends, price walks the band — closing along the upper band for ten candles straight while shorts get run over. A close outside the band is not a reversal signal by itself; in a trend it's strength.

Rule of thumb: bands flat and wide → reversion trades; bands tight → wait for squeeze break; bands sloped and price hugging one side → trend, don't fade it (trade pullbacks to the middle band instead).

How to backtest it

The regime call ("is this a range or a trend?") is a judgment skill — which makes this strategy ideal for manual backtesting:

1. Open chart replay on a random historical chart, 1H candles.
2. First decide the regime out loud, then apply only the matching strategy.
3. Log 50 trades, tagging each one reversion or squeeze.
4. Review which regime calls you got wrong — that's where the losses will cluster, and where the improvement is.

Common mistakes

1. Fading band touches in a trend — the account-killer. Check the band slope first.
2. Entering on the touch instead of the close back inside — the touch often keeps going; the re-entry close is the signal.
3. Holding reversion trades past the middle band hoping for the opposite band — that's a trend trade you didn't plan.
4. Trading the squeeze before it breaks — the coil can last longer than your patience; wait for the closing break.

FAQ

What are the best Bollinger Band settings?

The default (20, 2) is standard and fine. Tightening to (20, 1.5) gives more reversion signals with less edge each. As always: change one parameter, backtest 50 trades, compare.

Do Bollinger Bands work for crypto?

Yes — crypto's volatility cycles (long coils, violent expansions) suit the squeeze strategy particularly well. Replay BTC or altcoin history and you'll find textbook squeezes in every era.

Bollinger Bands or RSI?

They pair rather than compete: bands give location (stretched from the mean), RSI confirms momentum exhaustion. Band touch + RSI extreme + reversal candle is a classic three-factor reversion entry.