Bollinger Bands place a moving-average centre line between bands a chosen number of price standard deviations away, commonly SMA20 ± 2σ. Their width describes recent measured dispersion. A squeeze does not guarantee a subsequent volatility burst, and a touch does not automatically establish overbought or oversold reversal. Price can continue along a band. Settings, data and the standard-deviation calculation matter; the bands are not a universal probability interval. See Oscillators and momentum.
Example. For an illustrative USD/JPY H1 bar, SMA20 is 148.00 and the selected price standard deviation is 0.15. With a two-standard-deviation multiplier, the upper band is 148.30 and the lower band 147.70. The bands narrow to their smallest width of the week. This squeeze describes low recent measured volatility; it does not guarantee a subsequent burst or reveal its direction. A trader sells simply because price reaches the upper band, but price then follows it upwards for several bars and the stop is triggered. Bands summarise a price distribution rather than directly identifying supply and demand. Test the complete response to a squeeze or band touch rather than treating either as a standalone entry signal.
Default parameters do not define future price probabilities
The usual 20 and 2 are conventions, not the confidence level of a forecast. The price distribution and moving window do not automatically justify applying a 95% rule to future observations. Check the platform’s standard-deviation calculation. Source for interpretation: John Bollinger: rules for using the bands.
Record width and location
In the basic variant, Upper = SMA + kσ and Lower = SMA − kσ. A conventional BandWidth = (Upper − Lower)/SMA measures relative width; %b = (price − Lower)/(Upper − Lower) locates price. Outside the bands, %b can be below zero or above one. Zero denominators require defined handling.
Price, dispersion and signal time
Specify the price series and sample or population standard deviation, since conventions can change bands. Values can change during the current candle. A rule requiring a completed close outside a band becomes known at the end of that interval and cannot justify an earlier entry.
FAQ
What does a Bollinger Band squeeze mean?
The selected standard deviation has fallen and the bands are closer together. A squeeze can be used to define a hypothesis about subsequent volatility, but low volatility can persist. Neither a strong next move nor its direction is guaranteed; any breakout and confirmation rules need testing.
Does touching a band mean that I should buy or sell?
No. Price can continue along a band during a trend. A touch is not automatically an overbought or oversold reversal, nor is the band a directly observed supply or demand level. Interpret it within a precisely specified rule and market context.
What are the usual Bollinger Band settings?
A common configuration is a 20-period SMA with bands two selected price standard deviations away. A larger multiplier widens the bands; a smaller one narrows them. Match the platform’s data and calculation and test settings on the instrument and interval. The bands are not a universally valid probability interval.
How do Bollinger Bands differ from Keltner Channels?
Bollinger width uses price standard deviation; common modern Keltner implementations use an ATR multiple around a moving average. Their behaviour depends on the chosen periods and smoothing. Some strategies define a squeeze when Bollinger Bands lie inside Keltner Channels, but this does not establish a guaranteed breakout.
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