Bollinger Bands
An average with bands two standard deviations either side, which widen and narrow with volatility.
5 minLesson 4 of 102 questions at the end
Key ideas
- 1The middle line is a 20-candle SMA (the basis). The bands sit two standard deviations above and below it.
- 2Wide bands mean the price has been swinging a lot; narrow bands mean it has been quiet.
- 3Most closes land inside the bands, but in a strong trend the price can ride along one band for a long time.
- 4A squeeze (very narrow bands) often comes before a bigger move, but it doesn’t say which way.
How they work
Formula
Bands = 20-candle SMA ± 2 × standard deviation
Standard deviation measures how spread out the last 20 closes are.
Bollinger Bands
Made-up candles. Watch the bands pinch in the quiet stretch, then widen when the price breaks out.
Made-up 1h candlesWorked out like Lance Trade’s chart
O 86,843H 87,700L 86,823C 87,501BB Basis 85,043BB Upper 87,561BB Lower 82,524
Length20
Deviations2.0
Reading them
- Wide bands: the price has been swinging. Narrow: it has been quiet.
- A squeeze, the narrowest bands in a while, often comes before a bigger move, in either direction.
- In a strong trend, the price can walk along one band for a long time.
What they can’t do
Common mistakes
- Shorting every touch of the upper band. In a rally, the price can hug it for days.
- Reading a squeeze as a direction. It only hints that volatility may rise.
Check yourself
Question 1 of 2
The bands have become very narrow. What does that suggest?
Keys 1 to 3 pick an answer, Enter checks it
Try it in Lance
Add them from Indicators and change the deviations to see the bands widen and narrow.
Add Bollinger Bands