[I]Looking at the chart above, you can see the bands squeezing together. [B]The price has just started to break out of the top band[/B]. Based on this information, where do you think the price will go?
[B]Price shoots up[/B]
If you said up, you are correct again!
This is how a typical Bollinger squeeze works.[/I]
No, it’s not a typo. They are talking about two different strategies based on two different sets of market conditions and how to use an indicator that measures standard deviations.
First, remember this: Periods of low volatility lead to periods of high volatility and vice versa.
The first strategy mentioned in the BP school is a Bollinger Band breakout. When the upper and lower bands are close together it signifies a period of low volatility. When price breaks through one of the bands (going more than 2 standard deviations from the center line) you should expect price to continue in that direction as it may be the beginning of a period of high volatility.
The second strategy is for when it is NOT a period of low volatility and the bands are rather far apart and the market is ranging a bit. Then the Bollinger Bands notify you when price has reached an extreme for that particular market condition by exceeding 2 standard deviations and you can expect a reversion to the mean.
Using Bolls Bands can be tricky, I would suggest you read John Bollinger’s book “Bollinger on Bollinger Bands” before using them trading with real money.
Unfortunately a lot of the information you find on the internet on the bolls bands is misleading. They can be a valuable tool but only when you use them correctly.
John explained it best, it is two different strategies and market conditions. The breakout is best if the bands have tightened and you are hoping to catch the beginning of a trend but the other example is more a counter trend strategy where you use the signal from the BB to go against the current trend.