Dear traders!
In this comprehensive guide, we’ll explore Bollinger Bands, a classic technical indicator used by traders worldwide for decades. You’ll learn:
- What Bollinger Bands are and their history
- The formula and calculations behind them
- How the indicator works
- Key trading signals
- Proven Bollinger Bands strategies
- Optimal settings for different markets
- Tips from professional traders
Let’s dive into this powerful trading tool!
What Are Bollinger Bands? Definition and History
Bollinger Bands were developed by John Bollinger in the 1980s. Originally a financial analyst, Bollinger combined moving averages with volatility-based bands to create this versatile indicator.
Key Components:
- Middle Band: 20-period Simple Moving Average (SMA)
- Upper Band: SMA + (2 × Standard Deviation)
- Lower Band: SMA - (2 × Standard Deviation)
These bands dynamically adjust to market volatility—expanding during volatile periods and contracting in calmer markets.
Bollinger Bands Formula & Calculations
The mathematical foundation of Bollinger Bands involves:
- Standard Deviation (σ): Measures price volatility
- Moving Average (μ): Tracks the average price over a set period
Formulas:
- Upper Band (UB) = μ + (m × σ)
- Lower Band (LB) = μ - (m × σ)
Where:
- m = multiplier (typically 2 for a 20-period SMA)
Recommended Settings:
| Period | Multiplier |
|--------|------------|
| 10 | 1.9 |
| 20 | 2.0 |
| 50 | 2.1 |
For hands-on practice, use this Bollinger Bands Excel Sheet.
How Bollinger Bands Work
Key Tools:
%b Indicator: Measures price position relative to bands
- Formula: %b = (Price - LB) / (UB - LB)
- Values >1 = price above upper band; <0 = below lower band
BandWidth: Tracks volatility contraction/expansion
- Formula: (UB - LB) / μ
Interpreting Signals:
- Bands widen → High volatility (trend continuation likely)
- Bands narrow → Low volatility (potential breakout ahead)
Bollinger Bands Trading Signals
Common Patterns:
- W-Bottoms: Double-bottom reversal pattern near lower band
- M-Tops: Double-top reversal near upper band
- Three Pushes to High: Successive highs with weakening momentum
👉 Master these patterns with real charts
Top Bollinger Bands Strategies
1. Double Bollinger Bands (DBBs)
- Uses two BB sets (20-period, 1σ and 2σ)
- Buy Zone: Price between upper 1σ and 2σ bands
- Sell Zone: Price between lower 1σ and 2σ bands
2. Bollinger Squeeze Strategy
- Identify low volatility (BandWidth at minimal levels)
- Enter when price breaks upper/lower band
- Ride the momentum until bands contract again
3. Scalping with RSI Filter
- Entry: Price touches band + RSI <30 (buy) or >70 (sell)
- Exit: Opposite band or 1:1.5 risk-reward ratio
Optimal Bollinger Bands Settings
| Market Condition | Period | Multiplier |
|-----------------------|--------|------------|
| Short-term trading | 10-15 | 1.8-1.9 |
| Swing trading | 20 | 2.0 |
| Long-term investing | 50 | 2.1 |
Pro Tip: Combine with momentum indicators (RSI, MACD) for confirmation.
Bollinger Bands FAQ
Q: Are Bollinger Bands reliable alone?
A: They work best with other indicators (e.g., RSI, volume analysis).
Q: What’s the best strategy for beginners?
A: Start with the Double Bollinger Bands strategy on higher timeframes (H4/D1).
Q: How do I avoid false breakouts?
A: Wait for candle closes outside bands + confirm with momentum indicators.
Q: Can I use Bollinger Bands for crypto?
A: Yes! They’re effective across Forex, stocks, and cryptocurrencies.
👉 Practice risk-free on a demo account
Key Takeaways
- Bollinger Bands adapt to volatility—narrow = calm, wide = active
- Combine with other tools (RSI, MACD) for higher accuracy
- W-bottoms/M-tops signal potential reversals
- The squeeze strategy excels in ranging markets
Ready to apply this? Test these strategies on your trading platform, and always backtest before going live!
Want more trading insights? Join our free trading community for real-time signals and expert analysis!
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