Bollinger Bands

Bollinger Bands is a volatility indicator developed by John Bollinger in the 1980s. It consists of three lines: a middle band (simple moving average), an upper band, and a lower band. The upper and lower bands are placed at a specified number of standard deviations above and below the middle band, dynamically expanding and contracting based on market volatility.

Bollinger Bands are calculated using a moving average and standard deviation:

Middle Band = SMA(close, N)
Upper Band  = Middle Band + K * StdDev(close, N)
Lower Band  = Middle Band - K * StdDev(close, N)

Where N is the period (default 20) and K is the multiplier (default 2.0).

Two additional sub-components provide normalized readings:

%B         = (close - Lower Band) / (Upper Band - Lower Band)
Bandwidth  = (Upper Band - Lower Band) / Middle Band

%B shows where price is relative to the bands (0 = at lower, 1 = at upper, 0.5 = at middle). Bandwidth measures band width as a percentage of the middle band — useful for detecting squeezes.

• Squeeze — When bands contract tightly, it signals low volatility and often precedes a breakout
• Expansion — Wide bands indicate high volatility
• Walking the band — During strong trends, price can stay near the upper or lower band
• Mean reversion — In ranging markets, price tends to return to the middle band
• %B overbought/oversold — %B above 1.0 means price is above upper band; below 0.0 means below lower band

Buy signals

• Price touches or crosses below the lower band and reverses back inside
• %B crosses above 0 from below (price re-enters bands from below)
• Bollinger Squeeze followed by price break above upper band
• Price bounces off the middle band in an uptrend

Sell signals

• Price touches or crosses above the upper band and reverses back inside
• %B crosses below 1 from above (price re-enters bands from above)
• Bollinger Squeeze followed by price break below lower band
• Price fails to hold the middle band in a downtrend

| Parameter | Default | Description | |-----------|---------|-------------| | Period | 20 | Number of candles for SMA and StdDev | | Multiplier (K) | 2.0 | Standard deviation multiplier |

| Component | Description | |-----------|-------------| | BB_UPPER(20) | Upper band value | | BB_LOWER(20) | Lower band value | | BB_PERCENT_B(20) | %B — normalized position within bands | | BB_BANDWIDTH(20) | Bandwidth — relative band width |

| Condition | Description | |-----------|-------------| | close > BB_UPPER(20) | Price above upper band (breakout) | | close < BB_LOWER(20) | Price below lower band (oversold) | | close cross_over BB_LOWER(20) | Price crosses back above lower band | | BB_PERCENT_B(20) > 1 | Price exceeded upper band | | BB_PERCENT_B(20) < 0 | Price below lower band | | BB_BANDWIDTH(20) < 0.05 | Squeeze — very narrow bands |

• The default 20-period, 2-StdDev setting captures ~95% of price action within the bands
• Use %B for quantitative overbought/oversold analysis instead of visual band touches
• Bandwidth is excellent for detecting Bollinger Squeeze setups — look for historically low values
• In strong trends, do not fade the band — price can "walk the band" for extended periods
• Combine with volume indicators to confirm breakouts from squeezes
• Narrowing bandwidth followed by expansion is one of the most reliable volatility patterns