Constructing Bollinger bands versus fixed trading bands

How a moving-average envelope is built

Trading bands, sometimes called envelopes, are constructed by placing two lines a predefined distance from a chosen moving average so they mark the upper and lower bounds of a price move. That two-line envelope is a trading-band: the lines act as visual high and low boundaries around price.

Those bands are framed as a relative reading of whether price is high or low, not as standalone buy or sell signals, and are meant to be paired with another analytical tool.

Editorial: a moving-average envelope answers whether price is relatively high or low only after you choose the offset rule that places the outer lines.

Fixed percentage versus standard-deviation offsets

Ordinary trading bands sit a predetermined fixed percentage above and below the moving average. That constant gap is a fixed-percentage-offset, independent of changing volatility.

Bollinger lines sit at standard-deviation distances from a moving average. That placement is a standard-deviation-offset: each outer line sits a stated multiple of recent price dispersion above or below the middle average.

Because standard deviation is a volatility measure, the Bollinger construction adjusts its own width instead of remaining at a constant offset. The three-line envelope is a bollinger-band whose outer lines expand and contract with volatility.

What the three lines describe

A common default uses a 20-period simple moving average as the middle line, with the outer lines two 20-period standard deviations above and below that average, usually from daily closes. That central line is the middle-band, the trend reference from which the outer lines are measured.

In that three-line layout the outer bands describe high and low volatility while the middle band describes the trend.

Touches are not entry or exit rules

Price touching an outer band is not treated as an entry or exit by itself. A move that begins at one band often continues toward the opposite band, and closes outside the envelope are more often read as continuation than reversal.

The moving-average length and the number of deviations can be changed, but the envelope remains a high-low reference and is not intended as the sole reason to enter or exit.