Bollinger Bands & Stochastic
A volatility envelope and a momentum oscillator
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One tool watches how jumpy price is. The other watches how fast it is running. Between them you get the mood and the speed of the market.
Orange Put here. 📊 Two crowd favourites in one lesson, because they answer different halves of the same question. Bollinger Bands measure volatility — how wild price is right now. The Stochastic oscillator measures momentum — how stretched the current move has become.
Bollinger Bands: a rubber envelope
Start with a moving average as the middle line. Add two bands roughly 2 standard deviations above and below it. Price spends most of its time inside that envelope, and the bands breathe as volatility changes.
Middle line — a moving average of recent price. Upper and lower — about 2 standard deviations away. Widening — volatility is rising, the bands stretch apart. Pinching — volatility is dying, a "squeeze".
That squeeze is the part people care about. Volatility is cyclical: quiet periods tend to be followed by loud ones. A tight pinch often precedes a big move — though notably, it tells you *nothing* about which direction.
Touching the upper band is not a sell signal. In a strong trend price can ride the upper band for a long time, and every touch looks like an opportunity to fade. Riding the band signals strength, not exhaustion.
Stochastic: a two-line speedometer
The Stochastic plots two lines, %K and %D, that swing between 0 and 100. It compares where price closed relative to its recent range — closing near the top of the range pushes it up, near the bottom pushes it down.
%K — the fast, raw line. %D — a smoothed average of %K, the slower one. Above 80 — overbought. Below 20 — oversold.
It is a cousin of RSI, but the second line is what makes it worth learning separately. The crossovers between %K and %D are the signal most traders actually use, especially when they happen inside the extreme zones.
What "overbought" really means
Both tools invite the same error, so it is worth stating plainly: overbought does not mean "about to fall". It means "has risen a lot recently". In a strong trend the Stochastic can sit above 80 for days while price keeps climbing, and every reading looks like a top to someone.
Overbought is a description of the past, not a prediction of the future. Trends do not care that a line is high.
The more reliable use is divergence: price makes a higher high while the oscillator makes a lower high. That mismatch says the move is running on fumes — and unlike a raw reading, it requires the market to actually disagree with itself.
A squeeze tells you a move is coming. The oscillator crossing out of an extreme tells you momentum has turned. Neither is a signal alone; together they at least agree on the timing.
One tool for the mood, one for the speed. Ask each of them the question it can actually answer. ⚙️