Volatility: Bollinger & ATR

Reading time ~5 min · Last updated 2026-07-17

Volatility indicators measure how much the market moves, ignoring direction. In leveraged crypto trading this is not academic: volatility determines your position size, your stop distance, and how close you dare sit to your liquidation price.

Bollinger Bands

A 20-period SMA with bands drawn 2 standard deviations above and below. Because the bands are computed from recent volatility, they breathe: tight when the market is quiet, wide when it is wild. Statistically ~95% of closes fall inside them.

• The squeeze — bands pinch to their narrowest in months: energy is coiling; a strong directional move often follows. The squeeze predicts magnitude, not direction.
• Band walks — in strong trends price rides along the upper (or lower) band candle after candle. Touching a band is not by itself a reversal signal — the same "overbought ≠ sell" trap as RSI.
• Mean reversion — in flat, rangebound conditions, band touches do tend to revert toward the middle. As always: regime first, signal second.

ATR — Average True Range

The workhorse. ATR is the average size of a candle's full range (including gaps) over the last 14 periods — a single number saying "this market currently moves about X per candle."

Keltner Channels — Bollinger's steadier sibling

Keltner Channels wrap an EMA with bands set at a multiple of ATR (typically 20-EMA ± 2×ATR) instead of standard deviation. ATR moves more smoothly than standard deviation, so Keltners breathe more calmly than Bollingers. The classic combination uses both: when the Bollinger Bands squeeze inside the Keltner Channels, volatility compression is extreme — the highest-conviction version of the squeeze setup. When the Bollingers expand back outside, the coil has sprung.

Volatility and leverage — the crypto-specific warning

Crypto volatility clusters: quiet weeks, then violent days, often overnight or at weekends when books thin out. A 10x position sized for last week's calm can be liquidated by this week's storm. When ATR expands, professionals size down — the market got riskier per contract, so they hold fewer contracts. Beginners often do the opposite, drawn in by the action.