Bollinger Bands explained
Updated 11 October 2026
Bollinger Bands are three lines drawn around price, created by John Bollinger in the 1980s. The middle line is a moving average. The upper and lower lines sit a set number of standard deviations above and below it. When prices swing a lot, the bands widen; when prices are quiet, they narrow.
The formula
- Middle band = 20-period simple moving average (SMA) of closes
- Upper band = middle band + 2 × standard deviation of the same 20 closes
- Lower band = middle band − 2 × standard deviation
The default (20, 2) is what most Indian charting platforms show. The standard deviation used is the population version: divide the sum of squared differences by N, not N − 1.
What standard deviation means here
Standard deviation measures how spread out the closes are around their average. If every close were the same, it would be zero and all three bands would sit on top of each other. The more the closes scatter, the larger it gets.
Worked example (small version)
To keep the arithmetic readable, use a 5-period version with Stock ABC's closes: ₹98, ₹100, ₹102, ₹99, ₹101.
- Average = (98 + 100 + 102 + 99 + 101) ÷ 5 = 500 ÷ 5 = ₹100
- Differences from the average: −2, 0, +2, −1, +1
- Squares: 4, 0, 4, 1, 1. Sum = 10
- Variance = 10 ÷ 5 = 2
- Standard deviation = √2 ≈ 1.414
- Upper band = 100 + 2 × 1.414 = 100 + 2.83 = ₹102.83
- Lower band = 100 − 2.83 = ₹97.17
A real 20-period band works exactly the same way, just with 20 closes.
%B and bandwidth
Two derived numbers help describe where price is and how wide the bands are.
- %B = (price − lower band) ÷ (upper band − lower band). It is 1 at the upper band, 0 at the lower band and 0.5 at the middle.
- Bandwidth = (upper band − lower band) ÷ middle band.
Example on a 20-day chart: Stock XYZ has a middle band of ₹500 and a standard deviation of ₹12.
- Upper band = 500 + 24 = ₹524; lower band = 500 − 24 = ₹476
- If the close is ₹518: %B = (518 − 476) ÷ (524 − 476) = 42 ÷ 48 = 0.875
- Bandwidth = (524 − 476) ÷ 500 = 48 ÷ 500 = 0.096, or 9.6%
How Bollinger Bands are commonly read
Touching a band
About 95% of values in a normal distribution lie within 2 standard deviations, so people sometimes assume price "should" stay inside the bands. Market prices are not normally distributed, and closes outside the bands are common. In a strong trend, price can "walk the band", closing near or beyond the upper band day after day. A touch is not, by itself, a reason to expect a reversal.
The squeeze
When bandwidth falls to a low level, the bands have narrowed because recent prices have been quiet. Periods of low volatility are often followed by higher volatility, but the bands do not tell you the direction or the timing.
Combining with other tools
John Bollinger himself suggests pairing the bands with indicators that use different information, such as volume, rather than with tools like RSI that are also built from the same closes. Repeating the same data through different formulas does not add new evidence.
Settings
A shorter average or a smaller multiplier makes the bands tighter and touched more often. A longer average or larger multiplier makes them wider. Tuning settings to past data rarely holds up on new data.
Limits you should know
- They lag. The middle band is a moving average, and the width depends on past closes.
- No direction. Bands describe how much price has been moving, not which way it will move.
- Fat tails. Large moves happen more often than a normal curve suggests, so "2 standard deviations" is not a 95% boundary in practice.
- Gaps and news can carry price far outside the bands.
The risk side
Band touches and squeezes are popular in options trading, where most individuals lose money: SEBI's studies (SEBI study, 2023 and 2025) found about 9 in 10 individual F&O traders lost money in FY22 and FY25. If you trade, set a stop-loss and check your risk-reward ratio first.
Questions people ask
- What are the default Bollinger Band settings?
- The usual default is a 20-period simple moving average with bands 2 standard deviations above and below it.
- Does touching the upper band mean the price will fall?
- No. A touch only means price is far above its recent average relative to recent volatility. In strong trends price can stay near the upper band for a long time.
- What is a Bollinger squeeze?
- It is when the bands narrow because recent prices have been quiet. It describes low volatility and says nothing about the direction of the next move.
- What does %B of 0.875 mean?
- It means the price is 87.5% of the way from the lower band to the upper band, so it is in the upper part of the bands.