Bollinger Bands
Bollinger Bands are a volatility envelope drawn as three lines: a moving average of price in the middle and two bands set a chosen number of standard deviations above and below it, so the channel widens when volatility rises and contracts when it falls.
What it measures
The middle line is a moving average (SMA by default). The upper and lower bands are that same average plus and minus k standard deviations of price over the same window — a direct, statistical measure of how far price has stretched from its own recent mean.
Parameters
| Name | Default | Range | Note |
|---|---|---|---|
| period | 20 | 10–50 | John Bollinger's original recommendation. Shorter windows react faster but noise dominates. |
| deviations | 2.0 | 1.0–3.0 | k standard deviations. 2.0 captures ~95% of prices under a normal-distribution assumption — markets are not normal, so live coverage is closer to 85–90%. |
| source | close | close, hlc3 | Close is standard; hlc3 slightly smooths the bands on gappy instruments. |
How it behaves
A "Bollinger squeeze" — bands contracting to their tightest range in months — precedes many explosive moves, but does not tell you which direction. A tag of the upper band in an uptrend is often continuation rather than reversal; in a range it is more reliably a mean-reversion cue. The middle line frequently acts as intraday support/resistance.
When it misleads
Bollinger Bands fail most dramatically when traders treat the outer bands as reversal levels in a strong trend. Price can "walk the band" for many candles — closing at or beyond the upper band repeatedly — and shorting each touch is a well-documented way to be run over. The bands describe stretch, not exhaustion.
Backtest result
Sourced backtest in preparation — we're running the rule on our own historical candles before publishing numbers we can stand behind.
FAQ
- What is a Bollinger squeeze?
- A period where the bands narrow to a multi-week or multi-month low, indicating unusually low volatility. Historically these have often preceded expansion, but the direction of the expansion has to come from something else on the chart.
- Bollinger Bands vs Keltner Channels?
- Bollinger uses standard deviation of close; Keltner uses ATR of range. Bollinger reacts faster to price shocks; Keltner reacts to actual range expansion, which is often the cleaner volatility signal.
- Do Bollinger Bands work on crypto?
- They work the same way — the maths does not care — but crypto's fatter tails mean the 2σ bands are broken more often than the ~5% you would expect from a normal distribution. Adjust deviations up or use tighter stops.
Build a strategy with Bollinger Bands
Drop the block into the Nodlow builder and backtest on real historical data.
Try it in the builder