Indicator
Bollinger Bands
Bollinger Bands plot a moving average with an upper and lower band placed a chosen number of standard deviations away. The bands widen when recent price variability rises and narrow when it falls.
Length of the middle moving average.
How far the bands sit from the middle line.
Chart runs on a generated sample series, not live or historical exchange data. Values are computed with the same functions CernoQuant uses to run backtests.
How it is calculated
How to read it
- Band width is a direct read on recent volatility: wide bands mean closes have been dispersed, narrow bands mean they have clustered.
- Price spends most of its time inside the bands by construction, since the bands are defined from the dispersion of those same prices.
- A period of unusually narrow bands indicates recent quiet. It says nothing about which direction any subsequent move will take.
What it does not tell you
- Touching or exceeding a band is not a reversal signal. In a strong move price can ride the upper band for an extended run.
- Standard deviation assumes a distribution that price returns do not strictly follow, so the statistical framing is looser than it appears.
- Both bands derive from the same underlying average, so all three lines lag together.
Common settings
A 20-period average with 2 standard deviations is the convention John Bollinger described. Raising the multiplier widens the bands and reduces how often price reaches them.
Frequently asked questions
What does it mean when Bollinger Bands squeeze?
It means recent closes have been tightly clustered, so measured volatility is low. A squeeze describes present quiet; it does not indicate the direction of whatever follows.
Is touching the upper band a sell signal?
No. Price reaching a band means it is roughly two standard deviations from its recent average, which happens routinely during sustained moves. Price can track the upper band throughout a strong advance.
Why 20 periods and 2 standard deviations?
These are the settings John Bollinger described and platforms adopted as defaults. They are conventions, not optimised values.
Related
- Volatility: What It Measures and What It Does Not — Concept
- Simple Moving Average (SMA) — Indicator
- Average True Range (ATR) — Indicator
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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