the upper and lower bollinger bands are placed at

Two standard deviations above and below a 20-period simple moving average, which forms the middle band. Because the standard deviation is recalculated from the last 20 closes every session, the bands widen automatically when the stock turns volatile and contract when it goes quiet. That self-adjustment is the entire point of the construction.

bollinger band squeeze meaning

A Bollinger squeeze is when the two bands contract to their narrowest width in several months, which means volatility has collapsed. Since volatility is mean-reverting and does not stay compressed indefinitely, a squeeze indicates that a large move is being loaded. It says nothing at all about which way that move will go — it points to magnitude, not direction.

does price touching the upper bollinger band mean overbought

No — touching a band only means the move is statistically unusual relative to the last 20 sessions, not that the stock has become expensive. In a strong trend price can ride the upper band for weeks, a behaviour traders call walking the band, and it is a sign of strength rather than exhaustion. Reading every upper-band touch as a sell is the most common mistake made with this indicator.

atr meaning in trading

ATR, or Average True Range, is the distance a stock typically travels in a session including any overnight gap, conventionally smoothed over 14 periods. A day’s True Range is the largest of three quantities: high minus low, the absolute gap between high and the previous close, and the absolute gap between low and the previous close. ATR carries no directional information — it tells you how far a stock normally moves, never where it is heading.

how far should a stop loss be from entry using atr

A stop placed roughly 1.5 to 2.5 times ATR away sits outside ordinary daily noise while still capping the loss. The useful consequence is that volatile stocks automatically get wider stops and calm stocks tighter ones, which a flat percentage stop gets wrong in both directions. Once ATR has fixed the stop distance, the rupee amount you have decided to risk then fixes the quantity.

Bollinger Bands and measuring volatility

Every other indicator so far measures direction or momentum. Volatility indicators measure something different and arguably more actionable: how much this stock typically moves, which is what determines where your stop belongs and how large your position should be.

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How the bands are built

Middle band = SMA(20) Upper = Middle + 2σ Lower = Middle − 2σ

σ (sigma): Standard deviation of the last 20 closes — a statistical measure of dispersion
2σ: Under a normal distribution this would contain about 95% of observations

Example: Because σ is recalculated every day, the bands are not fixed. When the stock gets volatile they widen automatically; when it goes quiet they contract. That self-adjustment is the whole point.

The squeeze

This is where Bollinger Bands earn their keep. When the bands contract to their narrowest reading in several months, volatility has collapsed. Volatility is mean-reverting — it does not stay low indefinitely. A squeeze therefore signals that a large move is being loaded, without saying anything about its direction.

20-day average

Volatility contraction followed by expansion. The quiet period is when accumulation happens; the expansion is when it becomes visible. This sequence — contraction, then expansion — is among the most consistent behaviours in all markets.

ATR — the practical volatility number

Average True Range measures the typical distance a stock travels in a session, including any overnight gap. It is not a direction signal at all, and it is arguably more useful than most that are.

True Range = max( High − Low, |High − Prev Close|, |Low − Prev Close| )

ATR: A 14-period smoothed average of the True Range

Example: If a stock has an ATR of ₹28, it moves about ₹28 in a typical session. Placing a stop ₹10 away is not "tight risk management" — it is guaranteeing you get stopped out by ordinary noise.

Using ATR properly

1
Set stop distance in ATR multiples
A stop at 1.5× to 2.5× ATR sits outside normal daily noise while still limiting damage. This automatically means wider stops on volatile stocks and tighter stops on calm ones — which is exactly right, and which a fixed percentage stop gets wrong in both directions.
2
Let the stop size the position, not the other way round
Once ATR has determined your stop distance, your fixed rupee risk determines your quantity. A volatile stock with a wide stop automatically gets a smaller position. Risk stays constant across every trade regardless of the instrument.
3
Use it to compare opportunities honestly
A ₹40 target on a stock with ₹8 ATR is a five-session move. The same ₹40 target on a stock with ₹40 ATR is one ordinary day. ATR converts targets into a common unit.
4
Trail stops with it
A "chandelier" trailing stop sits a fixed ATR multiple below the highest high since entry. It widens automatically when the stock gets wild and tightens when it calms down.

Check yourself

Stock A has ATR ₹6 on a ₹300 price. Stock B has ATR ₹45 on a ₹300 price. You risk ₹5,000 per trade with a 2× ATR stop. How do the position sizes compare?

Simple bhasha mein

Kapde ka size

Garmi mein dheela kurta, sardi mein fit jacket. Bollinger Band bhi market ke hisaab se dheela-tight hota hai. Jab band ekdum tight ho jaayein — matlab market ne saans rok rakhi hai, aur aksar uske baad bada move aata hai. Direction woh nahi batata, sirf "kuch hone wala hai" batata hai.

What to remember

Bollinger Bands adapt to volatility because σ is recalculated every session.
Touching a band means "statistically unusual", never "expensive".
A squeeze predicts a large move but says nothing about its direction.
ATR tells you how far the stock normally travels — set stops in ATR multiples.
ATR-based stops automatically size positions correctly across different instruments.

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Common questions

Short, direct answers to what people ask about this topic.

the upper and lower bollinger bands are placed at: Two standard deviations above and below a 20-period simple moving average, which forms the middle band. Because the standard deviation is recalculated from the last 20 closes every session, the bands widen automatically when the stock turns volatile and contract when it goes quiet. That self-adjustment is the entire point of the construction.
bollinger band squeeze meaning: A Bollinger squeeze is when the two bands contract to their narrowest width in several months, which means volatility has collapsed. Since volatility is mean-reverting and does not stay compressed indefinitely, a squeeze indicates that a large move is being loaded. It says nothing at all about which way that move will go — it points to magnitude, not direction.
does price touching the upper bollinger band mean overbought: No — touching a band only means the move is statistically unusual relative to the last 20 sessions, not that the stock has become expensive. In a strong trend price can ride the upper band for weeks, a behaviour traders call walking the band, and it is a sign of strength rather than exhaustion. Reading every upper-band touch as a sell is the most common mistake made with this indicator.
atr meaning in trading: ATR, or Average True Range, is the distance a stock typically travels in a session including any overnight gap, conventionally smoothed over 14 periods. A day’s True Range is the largest of three quantities: high minus low, the absolute gap between high and the previous close, and the absolute gap between low and the previous close. ATR carries no directional information — it tells you how far a stock normally moves, never where it is heading.
how far should a stop loss be from entry using atr: A stop placed roughly 1.5 to 2.5 times ATR away sits outside ordinary daily noise while still capping the loss. The useful consequence is that volatile stocks automatically get wider stops and calm stocks tighter ones, which a flat percentage stop gets wrong in both directions. Once ATR has fixed the stop distance, the rupee amount you have decided to risk then fixes the quantity.