Bollinger BandsBB
Bollinger Bands are lines drawn a set number of standard deviations above and below a moving average, widening and narrowing with volatility.
Bollinger Bands wrap a moving average in an envelope that breathes with the market: wide when prices swing hard, narrow when they go quiet.1 That makes them two tools in one — a gauge of whether price is high or low relative to its recent range, and a volatility meter that often narrows before big moves. This entry shows how the bands are calculated, how to read touches, squeezes and band walks, and why touching a band is not a signal by itself.
- Category
- Indicators and Tools
- Reading time
- 6 min
- Also called
- Bollinger Band, Bollinger squeeze, Band squeeze
- Updated
Bollinger Bands in plain words
Draw a 20-day moving average. Then draw one line above it and one below, each two standard deviations away. Standard deviation measures how spread out recent prices have been, so the bands sit far apart when the market is volatile and close together when it is calm.2
Most of the time, price stays inside the bands. A move to the upper band means price is high relative to its recent range; a move to the lower band means it is low.2 Relative is the key word — in a strong trend, price can hug one band for a long time.
How to calculate and read Bollinger Bands, step by step
Calculate the middle band
A simple moving average, by default over 20 periods.2 See Moving Average.
Calculate the standard deviation
Over the same 20 periods, measure how far prices typically sit from that average.2
Draw the outer bands
Upper band = average + 2 standard deviations; lower band = average − 2 standard deviations. 20 and 2 are the defaults and can be changed.2
Watch the width
Bands tightening during low volatility raise the chance of a sharp move in either direction; unusually wide bands suggest an existing trend may be ending.2
Read touches in context
In ranges, price tends to swing from one band to the other; in strong trends it can hug one band for long periods.2
Confirm with something else
The bands are not meant to be used alone; use them to confirm signals from other tools.2
Worked examples
Example 1 — Calculating the bands
CalculationA stock’s 20-day average close is $50.00 and the standard deviation of those 20 closes is $1.25.
| Middle band | $50.00 |
| Upper band = $50 + 2 × $1.25 | $52.50 |
| Lower band = $50 − 2 × $1.25 | $47.50 |
| Bandwidth = (upper − lower) ÷ middle | 10% |
If the stock now trades at $52.20, it is near the top of its recent range — but that alone says nothing about whether it will fall.
Example 2 — A squeeze and breakout
SqueezeAfter three quiet weeks the same stock’s standard deviation shrinks to $0.40, so the bands narrow to $49.20–$50.80 (bandwidth 3.2%). Then it closes at $51.60, above the upper band, on heavy volume.
| Bandwidth before | 10% → 3.2% (squeeze) |
| Close vs. upper band | $51.60 vs. $50.80 |
| Reading | Volatility expanding upward |
Narrow bands do not tell you the direction, only that a larger move is more likely. Here the breakout direction came from the close above the band, ideally with volume. Watch for a false move that reverses quickly.2
Example 3 — Selling every upper-band touch
Band walkIn a strong uptrend a trader shorts each time price touches the upper band: at $60, $63 and $66. The stock keeps riding the band to $70.
| Three shorts | $60, $63, $66 |
| Price later | $70 |
| Combined loss per share | −$10 − $7 − $4 = −$21 |
Price can hug a band for prolonged periods during strong trends.2 Upper-band touches in an uptrend are a sign of strength, not exhaustion.
A squeeze, then expansion
Common Bollinger Band situations
| Aspect | What it usually means | Watch out for |
|---|---|---|
| Bands narrowing (squeeze) | Volatility unusually low; a big move is more likely2 | Direction unknown; first move can be a fake |
| Price touches upper band in a range | High end of the recent range | Breakouts start here too |
| Price hugs upper band | Strong uptrend | Shorting it fights the trend |
| Bands unusually wide | Volatility high; trend may be ending2 | Can stay wide in crashes |
| Close outside, then straight back in | Breakout strength negated2 | A possible false breakout |
How traders use Bollinger Bands
Spotting squeezes
Low bandwidth highlights quiet markets that may be about to move. See Volatility and Breakout.
Range targets
In sideways markets, a bounce off the lower band that crosses the middle band can make the upper band a target.2 See Range Trading.
Trend strength
Repeated closes near one band show a strong trend; a failure to reach the band again can warn of weakening.
Volatility-aware stops
Because the bands widen with volatility, some traders use the middle or opposite band as a trailing reference.
Advantages and disadvantages
Advantages
- Adapts automatically to changing volatility.
- Shows both relative price level and volatility in one view.
- The squeeze highlights quiet markets that may be about to move.
Disadvantages
- Band touches are not buy or sell signals on their own.
- Squeezes do not tell you the breakout direction.
- Built on a moving average, so it lags.
- In strong trends, “overbought” readings at the upper band can persist.
Going deeper
Read as far as you need. Each level builds on the one before it.
Default settings
Beginner
%B and bandwidth
Intermediate
%B shows where price sits inside the bands: 1 at the upper band, 0 at the lower band, 0.5 at the middle, and above 1 or below 0 outside them. Bandwidth is the distance between the bands divided by the middle band, which makes squeezes easy to compare over time.
Why prices do not stay inside 95% of the time
Advanced
In a normal distribution about 95% of values fall within two standard deviations, but price changes are not normally distributed and the bands are calculated on a moving window. In practice price closes outside the bands more often than 5% of the time, especially in trends. Treat the bands as a relative measure, not a statistical guarantee.
Common mistakes
Shorting the upper band in a trend
In strong uptrends price walks the upper band. Check the Trend first.
Guessing the squeeze direction
A squeeze says a move is likely, not which way. Wait for the break.
Using the bands alone
Combine them with price structure, volume or a momentum indicator such as the RSI.
Over-tuning the settings
Changing the period and width until past signals look perfect leads to Overfitting.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Middle band = 20-period SMA; outer bands = ± 2 standard deviations (defaults).
- The bands widen with volatility and narrow when markets are quiet.
- A squeeze makes a big move more likely but does not show its direction.
- In trends, price can ride one band for a long time.
- Use the bands to confirm other signals, not on their own.
Frequently asked questions
What are the best Bollinger Band settings?
Is touching the lower band a buy signal?
What is a Bollinger squeeze?
Further learning
- Volatility
What the width of the bands is measuring.
- Moving Average
The middle band is a simple moving average.
- Breakout
Squeezes often end in breakouts — and fakeouts.
- Relative Strength Index
A momentum check to pair with band touches.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- StockCharts ChartSchool. Bollinger Bands (opens in a new tab) Checked .
- Fidelity. Bollinger Bands (opens in a new tab) Checked .
Read more elsewhere
- Trading Metrics (our sister site): Bollinger Bands (opens in a new tab)
- Investopedia: Bollinger Bands (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.