📚 Stock Market Glossary

Bollinger Bands plot standard deviation bands above and below a central moving average (typically 20-period SMA).

Statistically, stock prices remain within the upper and lower bands approximately 95.4% of the time.

• The Squeeze: Occurs when the bandwidth contracts sharply. It signifies extreme volatility compression, serving as a precursor to a high-volume breakout.
• Band Breakouts: Touching or breaking the upper band indicates strong buying momentum, while penetrating the lower band signals intense selling pressure.

In range-bound markets, bands act as dynamic support and resistance levels. However, in powerful trend rallies, prices can 'walk the band' upward continuously.

Bollinger Bands plot three lines relative to price action: a 20-period simple moving average (Middle Band) flanked by Upper and Lower Bands set 2 standard deviations away.

Statistical probability dictates that roughly 95.4% of all price envelope movements occur inside the band thresholds:

• Upper Band Touch (Overbought Zone): Prices touching or penetrating the upper envelope indicate statistically overextended buying, signaling potential pullbacks.
• Lower Band Touch (Oversold Zone): Prices dropping below the lower envelope indicate severe selling pressure, offering tactical mean-reversion rebound setups.
• Band Squeeze (Vol-Expansion Warning): When upper and lower bands contract tightly together, it signifies historical volatility compression, preceding a massive directional price breakout.