Bollinger Bands are a technical indicator, developed by John Bollinger, that plots a middle moving average with an upper and a lower band around it. The outer bands widen and narrow with market volatility.
The middle band is usually a moving average, and the outer bands sit a set number of standard deviations above and below it. When volatility rises, the bands widen. When volatility falls, they narrow.
Traders read Bollinger Bands for overbought or oversold conditions, trend strength, volatility compression, and potential breakouts. A touch of a band does not guarantee a reversal, so signals are usually confirmed with trend direction, volume, momentum indicators, or support and resistance.
You apply Bollinger Bands to a EUR/USD chart. Price climbs to 1.0950 and runs near the upper band while the bands are widening.
That can show strong upward momentum, but you wait for confirmation before entering, because price can keep moving along the upper band in a strong trend.