volatility Indicator
What Is Bollinger Bands (BB)?
Bollinger Bands consist of a middle SMA band with upper and lower bands based on standard deviation, adapting to volatility.
Quick Answer
Bollinger Bands consist of a middle SMA band with upper and lower bands based on standard deviation, adapting to volatility.
What Does BB Measure?
Bollinger Bands were developed by John Bollinger in the 1980s. They consist of three lines: a simple moving average (middle band) and two standard deviation bands above and below. The bands expand during high volatility and contract during low volatility, making them useful for identifying potential breakouts and reversals.
Formula:
Middle Band = 20-period SMA; Upper Band = Middle + (2 × StdDev); Lower Band = Middle - (2 × StdDev)How to Read BB
- 1Price touching upper band may indicate overbought
- 2Price touching lower band may indicate oversold
- 3Band squeeze suggests potential breakout
- 4Price outside bands indicates extreme move
How to Use BB in Trading
✓Identify volatility expansions and contractions
✓Find potential reversal points at band touches
✓Spot breakout setups during squeezes
✓Measure relative price levels
BB Settings
| Setting | Default | Description |
|---|---|---|
| Period | 20 | Period for middle band SMA |
| Standard Deviation | 2 | Number of standard deviations for bands |
Common Mistakes to Avoid
✕Assuming band touches always mean reversal
✕Ignoring the trend when using bands
✕Not waiting for confirmation signals
✕Using default settings for all markets
Use BB in VaultCharts
VaultCharts includes Bollinger Bands with customizable settings. Combine it with our automated pattern detection and trade signals for better analysis.