TL;DR
Bollinger Bands plot a 20-period moving average with an upper and lower band two standard deviations away. The bands widen when volatility rises and squeeze when it falls. A squeeze hints a breakout is coming; %B tells you where price sits inside the bands; touching a band alone is not a reversal signal.
What Are Bollinger Bands?
Bollinger Bands, created by John Bollinger, wrap price in a three-line envelope. The middle band is a simple moving average (default 20). The upper and lower bands sit a set number of standard deviations (default 2) above and below it. Because standard deviation is a direct measure of volatility, the bands breathe: they expand when price gets volatile and contract when the market goes quiet. Statistically, roughly 95% of price action stays inside 2-standard-deviation bands, which is what makes excursions outside them meaningful.
Traders read the bands several ways:
- The squeeze: when the bands contract to an unusually narrow width, volatility is compressed and a breakout is often near. The squeeze is the most-watched Bollinger setup.
- Band walks: in a strong trend, price hugs the upper band (uptrend) or lower band (downtrend) for many bars. This is continuation, not reversal.
- Mean reversion: in a range, price tends to oscillate from one band back toward the middle MA, giving fade entries.
- %B and bandwidth: %B normalises where price sits inside the bands (0 = lower, 1 = upper); bandwidth quantifies how wide the bands are, making squeezes measurable.
The core mistake traders make is treating Bollinger Bands as a pure reversal tool — assuming an upper-band touch means “sell.” In trends, that’s a recipe for fighting the move. The bands describe volatility and relative position, not direction; direction has to come from context.
Key Formula / Numbers
Middle Band = SMA(20)
Upper Band = SMA(20) + (2 × standard deviation of price over 20)
Lower Band = SMA(20) − (2 × standard deviation of price over 20)
%B = (Price − Lower Band) / (Upper Band − Lower Band)
Bandwidth = (Upper Band − Lower Band) / Middle BandCommon settings:
| Setting | Default | Tighter | Wider |
|---|---|---|---|
| Period | 20 | 10 | 50 |
| Std Dev | 2.0 | 1.5 | 2.5 |
How Quantzee Uses This
Quantzee’s Bollinger Bands Pro+ upgrades the classic bands into a full volatility toolkit. It detects squeezes using a Keltner-channel overlap with a duration counter, so you see not just that volatility is compressed but how long the squeeze has lasted — longer squeezes tend to resolve more violently. On the break it reads a momentum-based breakout-direction bias to lean the trade the right way, and a Trend/Reversion classifier tells you whether the current regime favours riding band walks or fading toward the middle band. A %B divergence engine flags when price makes a new extreme but its band position doesn’t, and a multi-timeframe squeeze dashboard confirms whether higher timeframes are coiled too. All signals are non-repainting, locked at bar close.
Common Mistakes
- Selling every upper-band touch: in an uptrend price walks the upper band. Fading band touches without a regime check means repeatedly shorting strength. Confirm whether you’re trending or ranging first.
- Trading the squeeze direction blind: a squeeze tells you a move is coming, not which way. Wait for the actual break (and ideally a momentum or volume confirmation) instead of guessing direction inside the squeeze.
- Ignoring the middle band: the 20-period MA is the anchor — in trends it often acts as dynamic support/resistance. Traders who only watch the outer bands miss the most useful line on the chart.