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:

  • A middle band (20-day SMA)

  • An upper band: SMA + (2 × Standard Deviation)

  • A lower band: SMA − (2 × Standard Deviation)

These bands dynamically adjust to market volatility:

  • Wider bands = Increased volatility

  • Narrower bands = Decreased volatility

 

  Bollinger Bands Calculation

Main Formulas:

  • Upper Band = 20-day SMA + (20-day Std Dev × 2)

  • Middle Band = 20-day SMA

  • 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:

  • Near 1 = Overbought zone

  • Near 0 = Oversold zone

 

 

Trading with Bollinger Bands

These are the key use cases:

  1. Spotting Trend Reversals

    • Historical entry/exit levels often align with band extremes

  2. Pullback Detection

    • Intraday price dips toward the lower band can signal buying opportunities

  3. Overbought/Oversold Conditions

    • Near Upper Band = Overbought

    • Near Lower Band = Oversold

  4. Pattern Recognition

    • Helps validate patterns like:

      • Double Tops / Bottoms

      • Head and Shoulders

      • Breakouts & Failures

  5. All Timeframes

    • Effective from 1-minute charts to multi-year trends


The Bollinger Band “Squeeze”

A Squeeze occurs when bands converge tightly around the moving average.

  • Indicates low volatility

  • Often precedes strong breakouts

  • 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:

  • Normal: 20-Period SMA, 2 Standard Deviations

  • Short-Term: 10-Period SMA, 1.9 Std Dev

  • 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
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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■ COMPARE PROVIDERS Forex Accounts Trade Signals Crypto Exchanges     ► Volume indicators Oscillators
■ TREND INDICATORS » Introduction

» Standard Deviation

» Bollinger Bands

» Parabolic SAR

» Ichimoku

» Moving Averages » Fibonacci

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