Bollinger Bands (Bollinger Bands)
Developed by John Bollinger · 1983
Quick Answer
Bollinger Bands were developed in the early 1980s by John Bollinger, CFA, CMT, and have become one of the most popular volatility-based indicators in global markets. The indicator consists of three lines: a simple moving average (typically 20 periods) and two standard deviation bands plotted above and below it.
What is the Bollinger Bands?
Bollinger Bands were developed in the early 1980s by John Bollinger, CFA, CMT, and have become one of the most popular volatility-based indicators in global markets. The indicator consists of three lines: a simple moving average (typically 20 periods) and two standard deviation bands plotted above and below it. Because the bands widen and contract based on price volatility, they adapt automatically to changing market conditions — something fixed-distance envelopes cannot do. Bollinger himself published a complete methodology for reading the bands, including the "Bollinger Squeeze", W-bottoms, M-tops, and trend-riding techniques, making this one of the best-documented indicators available to retail traders.
How It Works
The middle line is a 20-period simple moving average. The upper and lower bands are placed two standard deviations above and below that average. Because standard deviation measures dispersion around a mean, the bands naturally widen when price becomes more volatile and contract when volatility falls. In a normally distributed market, roughly 95% of price action should fall between the bands — making touches of the outer bands statistically significant events. Bollinger was explicit that band touches are not automatic buy or sell signals; they indicate that price has reached a statistical extreme and demand confirmation from another indicator before action.
Formula
Middle Band = SMA(20) of Close
Standard Deviation (σ) = sqrt(Σ(Close - SMA)² / 20)
Upper Band = Middle Band + (2 × σ)
Lower Band = Middle Band - (2 × σ)How to Read the Bollinger Bands
- 1Price touching upper band: statistically high — watch for reversal or continuation
- 2Price touching lower band: statistically low — watch for bounce or breakdown
- 3Bollinger Squeeze: bands contract sharply, signalling an imminent volatility expansion
- 4W-Bottom: double-bottom pattern with the second low inside the lower band — bullish reversal
- 5M-Top: double-top pattern with the second high inside the upper band — bearish reversal
- 6Band ride: trending markets can ride the upper or lower band for extended periods
- 7Mean reversion: in range-bound markets, price oscillates between the bands
Strengths and Weaknesses
Strengths
- +Adapts automatically to changing volatility
- +Provides objective overbought/oversold context based on statistical extremes
- +Squeeze setups identify periods of compression before breakouts
- +Works on every instrument and timeframe
- +Rich published literature makes it easy to learn advanced techniques
Weaknesses
- −Band touches in strong trends are not reversal signals — price can ride the band for weeks
- −The default 20-period SMA lags price during fast moves
- −Standard deviation assumes normal distribution, which forex returns only approximate
- −Requires a secondary indicator for confirmation in most setups
- −Poor on very low timeframes where noise dominates volatility
Best Timeframes
Effective across all timeframes. The 20-period setting works well on the daily chart but scales to any timeframe. Short-term traders can experiment with 10-period settings, while position traders may lengthen it to 50 periods.
Best for: Range-bound markets with clear boundaries, volatility expansion trades after squeezes, and identifying overextended moves in trending instruments for pullback entries.
Example Strategy
Bollinger Squeeze Breakout: On the 4H chart, scan for squeezes where the bandwidth has dropped to its lowest level in 120 periods. When price finally closes outside the squeezed band, enter in the direction of the breakout with a stop at the opposite band. The squeeze tells you that volatility expansion is coming; the directional break tells you which way. Use a time-based exit if the move stalls within five candles — failed squeezes often reverse sharply.
This example is educational, not financial advice. Always backtest any strategy and manage risk with appropriate position sizing.
Related Indicators
Brokers That Offer the Bollinger Bands
Any broker with MetaTrader 4, MetaTrader 5, or cTrader supports the Bollinger Bands as a standard indicator. Below are our top EU-regulated picks.
Frequently Asked Questions
What is the Bollinger Bands (Bollinger Bands)?
Bollinger Bands were developed in the early 1980s by John Bollinger, CFA, CMT, and have become one of the most popular volatility-based indicators in global markets. The indicator consists of three lines: a simple moving average (typically 20 periods) and two standard deviation bands plotted above and below it. Because the bands widen and contract based on price volatility, they adapt automatically to changing market conditions — something fixed-distance envelopes cannot do. Bollinger himself published a complete methodology for reading the bands, including the "Bollinger Squeeze", W-bottoms, M-tops, and trend-riding techniques, making this one of the best-documented indicators available to retail traders.
Who developed the Bollinger Bands?
Bollinger Bands was developed by John Bollinger in 1983.
What is the formula for the Bollinger Bands?
Middle Band = SMA(20) of Close Standard Deviation (σ) = sqrt(Σ(Close - SMA)² / 20) Upper Band = Middle Band + (2 × σ) Lower Band = Middle Band - (2 × σ)
What timeframes work best with Bollinger Bands?
Effective across all timeframes. The 20-period setting works well on the daily chart but scales to any timeframe. Short-term traders can experiment with 10-period settings, while position traders may lengthen it to 50 periods.
What is Bollinger Bands best used for?
Range-bound markets with clear boundaries, volatility expansion trades after squeezes, and identifying overextended moves in trending instruments for pullback entries.