The Bollinger Bands look like three lines, but in reality, it can understand what the market is doing. The core logic of this technical indicator is to visualize volatility, allowing you to clearly see where the price extremes are.

**How is the Bollinger Band composed?**

The line in the middle is the 20-day Simple Moving Average (SMA20), which serves as the benchmark. The upper and lower bands are pulled outwards by 2 times the standard deviation. Simply put, it mathematically frames "where the market typically sits."

**Why is 2 Standard Deviations so Critical?**

From a statistical perspective, there is a 95% probability that the price will stay between the upper and lower bands. In other words, when the price touches the boundary of the bands, the market has entered an extreme state—either overbought or oversold. What does this usually mean? The trend is about to change.

**What can Volatility tell you?**

The change in the width of the Bollinger Bands reflects the temperature of market sentiment. A narrower channel indicates that the market is accumulating energy, while a wider channel represents the market releasing momentum. By observing the relationship between the candlestick and the position of the bands, you can identify four core market signals:

Ambush explosion period - channel contraction, the market is accumulating energy. During this time, price fluctuations are small, and both bulls and bears are accumulating ammunition.

Outburst period - the channel suddenly opens, and the price breaks through the track. This is the moment of energy release.

Continuation period - the channel maintains width, and the price fluctuates within the track. The trend is still ongoing.

Reversal Period - The price starts to move back towards the midline from one side of the band. Momentum begins to weaken, and reversal signals appear.

The whole process is actually: the market is quiet at first (momentum accumulation) → suddenly erupts (explosion) → maintains the rhythm (continuation) → finally gets tired (exhaustion reversal). These four stages repeat in cycles, and the Bollinger Bands can help you make decisions at each key point.