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Mean reversion
If price touches a Bollinger band, is that a reason to fade it?
Bollinger band mean reversion
What it bets
After a close lands far from the middle band, beyond a multiple of standard deviation, price will come back near the middle.
How the rule is written
The middle band is an average. The upper and lower bands are that average plus and minus a multiple of standard deviation. The reversion version looks for a buy on a close outside the lower band and a sell on a close outside the upper band. The target is often the middle band. Bollinger himself wrote that touching a band is not, by itself, a buy or sell signal. In a strong trend, price can walk along the upper or lower band for a long time.
When it fails
Just as a trend is starting, the first touch of a band is often the start of the trend, not the start of the return.
Do not confuse it with
A squeeze breakout reads a touch of the band as a departure. Reversion reads it as a return. A filter that requires bandwidth to already be wide is closer to the reversion bet that price has already been stretched too far.