How the bands are built
A Bollinger Band is three lines: a 20-period simple moving average in the middle, an upper band two standard deviations above it, and a lower band two standard deviations below. Standard deviation is a measure of how spread out recent prices have been, so the bands automatically widen when the market is volatile and narrow when it is calm.
That self-adjusting width is the whole point. Roughly 88-89% of price action should fall inside the bands if price were normally distributed — in practice it is a useful rule of thumb, not a law.
The most common misreading
"Price touched the upper band, so it is overbought, so I should short." This is wrong often enough to be expensive. In a strong uptrend price will walk along the upper band for extended periods — touching it repeatedly while continuing higher. The band is not a ceiling; it is a description of how far price has stretched relative to its own recent volatility.
A touch on the upper band tells you price is about two standard deviations above its 20-period average. In a trend, that is normal. In a range, it is genuinely stretched. The meaning depends entirely on the regime.
The squeeze — the genuinely useful signal
When the bands contract to unusually narrow width, volatility has collapsed. This is the squeeze, and it is valuable because low volatility tends to be followed by high volatility. Bollinger did not claim it tells you direction — only that a move is coming.
So the squeeze's proper use is as a preparation signal: volatility is compressed, expect expansion, decide in advance how you will trade the break and in which direction you will not fight it. Traders who use the squeeze as a direction signal are inventing the part the indicator does not provide.
Using the width for stops and targets
Band width is a live volatility measure, which makes it genuinely practical: a stop placed outside the opposite band is less likely to be hit by ordinary noise than one placed at an arbitrary round number. And in a range, the bands are a reasonable first estimate of where price tends to reverse.
Reference page with formula and parameters: /indicators/bollinger-bands. The Keltner variant, which uses ATR instead of standard deviation, is at /indicators/keltner-channels.
How to check this yourself
Add Bollinger Bands(20, 2). Find a squeeze — the narrowest the bands get on your chart — and mark it. Look at what happened next: not the direction, just the size of the expansion. Then find a strong trend and count how many times price closed outside the upper band while still going up. Both observations together are worth more than any rule about bands.