Bollinger Bands
Category
Klassische Technische Analyse
Sub-category
Volatilitäts-Indikatoren
Curated by
Last reviewed
Bollinger Bands are a volatility indicator made of three lines: a moving average (standard: SMA 20) and two bands at a distance of two standard deviations each. They show whether a price is high or low relative to its recent fluctuation range. Tight bands (squeeze) signal low volatility – historically often the precursor of larger moves.
Context & Mechanics
Definition and construction
Bollinger Bands (after John Bollinger, 1980s) consist of three components: the middle band – a simple moving average over 20 periods – plus upper and lower bands at a distance of two standard deviations of prices each. Because the standard deviation is calculated directly from price data, the bands breathe with volatility: in calm phases they contract, in turbulent ones they widen. Statistically, with normally distributed prices around 95% of observations lie within the bands – real price distributions however have fatter tails, so band breaks are more frequent than the normal distribution suggests.
The three classic readings
Relative price position: if price touches the upper band it is high relative to its recent fluctuation – not automatically a sell signal. In trends price often “walks” along the band (walking the bands); mean-reversion readings historically work better in sideways phases. Squeeze: extremely tight bands mark volatility compression. Since volatility clusters, compression is frequently followed by expansion – the squeeze provides the timing of elevated breakout probability, but not the direction. Band width as a filter: the band width (distance of the bands relative to the middle band) makes volatility regimes comparable and helps trade strategies only in suitable phases.
Limits
Bollinger Bands are descriptive, not predictive: they describe the recent past and give no directional signals. Trading band touches as mechanical counter signals is historically loss-making in trend phases. Common practice combines them with trend filters, RSI divergences or volume confirmation – and validates one's own reading via backtest.
Why it matters for traders
Bollinger Bands answer two questions at a glance: how volatile is the market right now, and where does price stand relative to that? In the GlanWick chart, bands with adjustable parameters can be laid over historical data and readings checked by way of example – GlanWick is a training and simulation tool and not a prop firm itself.
Execution Example
A stock trades at $50, the SMA(20) is also at $50. The standard deviation of the last 20 closes is initially $0.75, then falls to $0.40 in a calm phase. A trader watches the squeeze.
- Starting point: bands at 50 ± 2 × 0.75 → $48.50 / $51.50; band width $3.00 (6% of the middle band).
- Squeeze: σ falls to $0.40 → bands $49.20 / $50.80; band width shrinks to $1.60 (3.2%) – volatility compression.
- Expansion: price breaks above $50.80 on elevated volume; σ rises to $1.00 within days, the upper band moves to $52+ and price walks along the band.
- Reading: the squeeze provided the timing (elevated breakout probability), direction and confirmation came from the breakout level and volume – the bands alone would have given no directional signal.
Execution Risk & Errors
Mechanically trading every touch of the upper/lower band as a reversal signal
Ignoring walking the bands in trend phases and shorting against the trend
Reading the squeeze as a direction signal instead of a timing hint
Transferring standard parameters (20, 2) to every market and timeframe without testing
Taking the normal-distribution assumption literally and considering band breaks extremely rare
Frequently Asked
What does it mean when price touches the upper Bollinger Band?
Only that it is high relative to its recent fluctuation range. In sideways phases a return to the middle band follows more often, in trends price frequently keeps walking along the band.
What is a Bollinger squeeze?
A phase of extremely tight bands due to low volatility. Since volatility clusters, compression is often followed by expansion – the squeeze does not reveal the breakout's direction.
Which parameters are common?
Standard are 20 periods and 2 standard deviations. Shorter periods make the bands more reactive, more standard deviations reduce band touches – every deviation should be backtested.
How do Bollinger Bands differ from Keltner Channels?
Bollinger Bands use the standard deviation of prices, Keltner Channels the ATR around an EMA. Bollinger Bands react more strongly to outliers; combining both defines the squeeze in some setups.