Bollinger Bands are a popular technical analysis tool used to identify potential buy and sell signals. Here’s a step-by-step guide on how to use them for trading:

### Understanding Bollinger Bands

Bollinger Bands consist of three lines:

1. **Middle Band**: A simple moving average (SMA), usually set to 20 periods.

2. **Upper Band**: The middle band plus two standard deviations.

3. **Lower Band**: The middle band minus two standard deviations.

### Key Concepts

1. **Volatility Indicator**: Bollinger Bands expand when volatility increases and contract when volatility decreases.

2. **Mean Reversion**: Prices tend to revert to the mean (middle band).

### Trading Strategies Using Bollinger Bands

#### 1. Bollinger Band Squeeze

- **Concept**: When the bands contract, it indicates low volatility and potential for a sharp price move.

- **Action**:

- Wait for the bands to squeeze.

- Enter a trade in the direction of the breakout (upward for bullish, downward for bearish).

2. Bollinger Band Bounce

- **Concept**: Prices tend to bounce within the bands.

- **Action**:

- Buy when the price touches the lower band.

- Sell when the price touches the upper band.

- Confirm with other indicators (e.g., RSI) to avoid false signals.

3. Bollinger Band Breakout

- **Concept**: A breakout occurs when the price moves outside the bands, indicating strong momentum.

- **Action**:

- Buy when the price closes above the upper band.

- Sell when the price closes below the lower band.

- Ensure the breakout is not a false signal by looking for confirmation (e.g., volume increase).

Additional Tips

- **Use in conjunction with other indicators**: Confirm signals with Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), or volume analysis.

- **Adjust settings**: The default settings are 20 periods and ±2 standard deviations. Adjust these based on the asset’s volatility.

- **Backtesting**: Test strategies on historical data to refine entry and exit rules.