Bollinger Bands
A volatility indicator with upper and lower bands around average price.
Bollinger Bands consist of three lines: a middle band (simple moving average) and two outer bands set at a specified number of standard deviations above and below. The bands expand when volatility increases and contract when it decreases.
Why It Matters
Bollinger Bands adapt to market conditions automatically. When the bands are tight, a breakout is likely coming. When they're wide, the market is volatile. Price touching or exceeding the outer bands can signal potential reversals or breakouts, depending on context.
Settings Explained
Direction — Bullish, bearish, or both.
Period — Number of candles for the middle band (SMA). Standard is 20.
Standard Deviations — How far the outer bands are placed from the middle. Standard is 2.0. Higher values (2.5, 3.0) make the bands wider, producing fewer signals but more extreme ones.
Look Back Mode — How far back the bands are calculated.
Outputs
- Upper Band — The upper boundary. Price reaching here suggests potential overbought conditions
- Middle Band — The moving average center line. Acts as dynamic support/resistance
- Lower Band — The lower boundary. Price reaching here suggests potential oversold conditions
Example Use Case
You build a mean-reversion strategy that buys when price touches the lower band and sells when it reaches the middle band. This works well in range-bound markets where price bounces between the bands.
Watch for 'Bollinger Band squeezes' — when the bands become very narrow. This often precedes a strong breakout. Combine with a Break of Structure block to catch the directional move.