Bollinger Bands
A volatility indicator on the price chart: an average with a band either side that widens when markets move and narrows when they go quiet.
What Bollinger Bands are.
Three lines around price that show how far it is moving from its recent average.
Bollinger Bands put three lines on a price chart. The middle line is a 20-period moving average. The upper and lower lines sit two standard deviations above and below it.
Standard deviation measures how widely prices spread around their average. So when prices swing a lot, the bands move apart. When the market is calm, they move closer together.
Bollinger Bands is a registered trademark of John A. Bollinger.
How they are calculated.
Four steps, repeated on every new bar. Your platform does the maths for you.
Average the last 20 closes.
That average is the middle band. It moves forward one bar at a time, like any moving average.
Measure how spread out those closes are.
This is the standard deviation of the same 20 closes. The more prices vary around the average, the larger it is.
Add and subtract twice that amount.
The middle band plus two standard deviations is the upper band. The middle band minus two is the lower band.
Repeat on every new bar.
When prices swing widely, the bands widen. When the market goes quiet, they narrow.
Upper band = middle band + (2 × 20-period standard deviation)
Lower band = middle band − (2 × 20-period standard deviation)
How to read them.
Four things traders look for. None of them is a signal on its own.
The squeeze.
When the bands pull tight, volatility is low. Quiet periods often give way to bigger moves, but a squeeze does not tell you which way the move will go.
Walking the bands.
In a strong trend, price can close at or beyond one band bar after bar. A touch of the upper band is not, by itself, a reason to sell.
Back to the middle.
In a sideways market, moves out to a band often drift back towards the middle line. This tends to fail once a trend starts.
%B and BandWidth.
%B shows where price sits inside the bands: 1 at the upper band, 0 at the lower. BandWidth is the gap between the bands divided by the middle band, a way to measure a squeeze.
Common mistakes.
Where traders new to Bollinger Bands most often go wrong.
Treating every touch of a band as a signal. In a trend, price can ride a band for a long time.
Reading a direction into a squeeze. It tells you volatility is low, not which way the break will go.
Using the bands on their own. John Bollinger suggests confirming with an indicator built on different data, such as volume or momentum.
Changing the period without thinking about the multiplier. The 20 and the 2 were chosen to work together.
Using them on MetaTrader 5.
Bollinger Bands are one of MT5’s built-in indicators, on desktop, web and mobile.
Open a chart.
In MetaTrader 5, open the instrument and timeframe you want to study.
Add the indicator.
Go to Insert, then Indicators, then Trend, and choose Bollinger Bands.
Check the settings.
The defaults are Period 20, Deviations 2 and Shift 0, applied to the close. Leave them as they are while you learn.
Save it as a template.
Right-click the chart, choose Templates, then Save Template, so you can apply the same set-up to other charts.
Questions, answered.
What traders ask most about Bollinger Bands.
01Who created Bollinger Bands?
02What settings should I use?
03Do Bollinger Bands work on forex?
04What does a close outside the bands mean?
05Can I practise with them first?
Practise it on a demo.
Add Bollinger Bands to a chart on a free MT5 demo and watch how they behave before you trade with real money.
Trading CFDs on a live account puts your capital at risk and you can lose money. A demo does not.