Bollinger Bands

Bollinger Bands wrap a moving average in two outer rails set a fixed number of standard deviations away — conventionally a 20-period average with the bands at two standard deviations. Because standard deviation is a measure of dispersion, the rails widen when the stock becomes volatile and contract when it settles. The bands are a volatility instrument first and a price instrument second.

The Squeeze

When the bands draw tight the stock has gone quiet, and quiet periods do not last. The squeeze does not tell you which way the resolution goes — only that one is coming. It pairs naturally with a symmetrical triangle, which is the same condition expressed as a shape, and it is the basis of our TTM squeeze scan.

The Bounce

In a range-bound stock price tends to revert toward the middle band after tagging an outer one, which is the classic mean-reversion read.

Where the Bounce Fails

This is the misreading that costs money. Touching the upper band is not an overbought signal. In a genuine trend price will ride the upper band for days — the walk — and each touch looks like a shorting opportunity right up until it isn’t.

The bands describe where price is relative to its own recent behaviour, and nothing more. On a penny stock mid-catalyst that baseline resets so fast the reading is close to meaningless: a stock up 300% in a session is far outside its upper band and can stay there. Establish whether the stock is ranging or trending before you act on any band signal.

What to Watch For

• The bands measure volatility first; price position second.
• A squeeze signals that a move is coming, not which direction.
• Touching the upper band is not an overbought signal — trends walk the band.
• Establish whether the stock is ranging or trending before acting on a band touch.

Scans That Use This

• TTM squeeze penny stocks
• 52-week breakout penny stocks

Technical Indicators

• Bollinger Bands
• Stochastics

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