What are Bollinger Bands? A plain-English guide
By SendPay Business · · 2 min read
Bollinger Bands are a chart tool, created by John Bollinger in the 1980s, that draws a band around a price based on how much it has been moving. They are widely used on forex, crypto and share charts to show volatility at a glance.
The three lines
- Middle band: the simple moving average of the last 20 closing prices.
- Upper band: the middle band plus two standard deviations of those closes.
- Lower band: the middle band minus two standard deviations.
Width shows volatility
When prices swing more, the standard deviation grows and the bands move apart. When the market goes quiet, they narrow. A very narrow stretch is often called a squeeze, because quiet periods are frequently followed by bigger moves, though the bands don't say which direction.
%B and bandwidth
%B places the latest price between the bands: 0 means it is on the lower band, 1 on the upper band, and 0.5 on the middle. Bandwidth is the gap between the outer bands as a share of the middle band, which makes it easy to compare how volatile a market is now with how it was before.
The limits
A price touching the upper band isn't automatically too high, and touching the lower band isn't automatically cheap; in strong trends prices can ride along a band for a long time. Like all chart tools, the bands describe past prices and don't predict future ones.
Where SendPay fits
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How do I work out Bollinger Bands?
Paste closing prices into the free calculator.
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This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.