Sharp price changes can occur after the bands have tightened and volatility is low. In this instance, Bollinger Bands do not give any hint as to the future direction of prices. Direction must be determined using other indicators and aspects of technical analysis. Many securities go through periods of high volatility followed by periods of low volatility. Using Bollinger Bands, these periods can be easily identified with a visual assessment.
Tight bands indicate low volatility and wide bands indicate high volatility.
Volatility can be important for options players because options prices will be cheaper when volatility is low. Starbucks SBUX provides an example of the bands tightening before a big move. In November, the bands were relatively wide and began to tighten over the next 2 months. Conclusions Even though Bollinger Bands can help generate buy and sell signals, they are not designed to determine the future direction of a security. The bands were designed to augment other analysis techniques and indicators.