Bollinger Bands

Bollinger Bands draw a band around a moving average that is two standard deviations wide on each side, so the band widens when price swings more.

How Bollinger Bands is calculated

Middle band = 20-bar SMA of the close. Upper band = middle + 2 x standard deviation of the last 20 closes. Lower band = middle - 2 x the same. Two derived numbers are %b (where price sits in the band, 0 to 1) and bandwidth ((upper - lower) / middle). John Bollinger developed them in the 1980s.

How it is read

Price near the upper band means it is high relative to its own recent range. The bands are a description of volatility, not a prediction that price will turn at them.

Common mistakes

• Assuming 95 percent of closes must stay inside. That holds only for normally distributed returns, which prices are not.
• Selling at the upper band in a strong trend, where price can ride the band for many bars.
• Using different settings in two tools and comparing results.

What Tickfloor tested

Tickfloor's research desk has backtested 678 strategies, net of modelled trading costs. After correcting for the 761 tests run, 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.

• Bollinger Band Bounce (claim test)
• Bollinger Band Squeeze (claim test)

Lessons that cover it

• ATR, Bollinger Bands and volatility-based stops

• Short definition in the glossary

Related concepts

• Bollinger Band squeeze
• Volatility
• Simple moving average (SMA)
• Mean reversion
• All concepts

General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.

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