Bollinger Bands (BB)
◙ Primary Use: Measuring Market Volatility | Spotting Oversold/Overbought Market Levels
◙ Trading: Identifying Trend Reversals (entry/exit triggers) | Recognizing trend strength and price compression
◙ Standard Settings: 20 Periods SMA and 2 Standard Deviations
Introduction to Bollinger Bands
Created by renowned money manager and researcher John Bollinger, Bollinger Bands are a widely used technical indicator composed of three lines:
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A middle band (20-day SMA)
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An upper band: SMA + (2 × Standard Deviation)
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A lower band: SMA − (2 × Standard Deviation)
These bands dynamically adjust to market volatility:
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Wider bands = Increased volatility
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Narrower bands = Decreased volatility
Bollinger Bands Calculation
Main Formulas:
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Upper Band = 20-day SMA + (20-day Std Dev × 2)
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Middle Band = 20-day SMA
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Lower Band = 20-day SMA − (20-day Std Dev × 2)
%b Indicator
- Measures where price is relative to the bands.
Formula:
%b = (Price − Lower Band) / (Upper Band − Lower Band)
A %b value:
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Near 1 = Overbought zone
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Near 0 = Oversold zone
Trading with Bollinger Bands
These are the key use cases:
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Spotting Trend Reversals
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Historical entry/exit levels often align with band extremes
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Pullback Detection
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Intraday price dips toward the lower band can signal buying opportunities
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Overbought/Oversold Conditions
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Near Upper Band = Overbought
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Near Lower Band = Oversold
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Pattern Recognition
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Helps validate patterns like:
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Double Tops / Bottoms
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Head and Shoulders
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Breakouts & Failures
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All Timeframes
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Effective from 1-minute charts to multi-year trends
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The Bollinger Band “Squeeze”
A Squeeze occurs when bands converge tightly around the moving average.
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Indicates low volatility
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Often precedes strong breakouts
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Highly valuable in forex trading
A sudden expansion after a squeeze often reveals the next directional move.
Platform Setup (MetaTrader 4/5)
To install Bollinger Bands:
→ INDICATORS → TREND → BOLLINGER BANDS
Recommended Settings:
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Normal: 20-Period SMA, 2 Standard Deviations
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Short-Term: 10-Period SMA, 1.9 Std Dev
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Long-Term: 50-Period SMA, 2.1 Std Dev
ℹ️ What is Standard Deviation? A statistical measure of price dispersion—larger deviations reflect higher volatility. (More about Standard Deviation)
Adjusting the Periods (Optional Settings)
Trading Style | SMA Period | Standard Deviation |
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Standard (Default) | 20 | 2.0 |
Short-Term Trading | 10 | 1.9 |
Long-Term Trading | 50 | 2.1 |
Adjust based on your asset's volatility and trading horizon.
■ What are the Bollinger Bands?
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