What are Bollinger Bands (BOLL)?
Bollinger Bands (BOLL) is an indicator developed in the 1980s by technical analyst John Bollinger that shows the volatility and the relative level of price at the same time. It consists of a moving average as the middle band, plus two bands set at a specific standard deviation distance above and below this average. The distance between the bands widens and narrows based on market volatility.
The structure of Bollinger Bands
Bollinger Bands consist of three lines:
- Middle band: The moving average of price (typically 20 periods)
- Upper band: Middle band + (standard deviation × multiplier, typically 2)
- Lower band: Middle band - (standard deviation × multiplier, typically 2)
Standard deviation is the statistical measure of how far price is from the average. With this structure, the bands automatically reshape based on price volatility.
How to read Bollinger Bands?
The behaviour of the bands gives clues about the state of the market:
- Narrow bands (squeeze): Low volatility; price is compressed and a large move may be approaching
- Wide bands: High volatility; the market shows a strong move
- Price near the upper band: Relatively high level in the short term
- Price near the lower band: Relatively low level in the short term
- Price returning to the middle band: Tendency to revert towards the average
A price touching a band is not a direct buy or sell signal; it is a position that should be evaluated in the context of volatility.
Use cases of Bollinger Bands
Detecting volatility
When the bands move closer together, this is called the Bollinger squeeze. This situation may indicate that the market is preparing for a strong move in the near future. The direction of the move cannot be inferred from the bands alone; it should be interpreted alongside other indicators or news flow.
Mean reversion strategy
When price touches the upper or lower band, it may show a tendency to revert towards the average. This strategy works better in a range-bound market, while it can be misleading in strong trends.
Trend confirmation
In a strong uptrend, price may stay near the upper band for a long time; in a strong downtrend, it may move along the lower band. This behaviour confirms the strength of the trend.
Bollinger Bands on Paribu
In the Paribu app, on the Market Detail > Chart tab, you can turn on the BOLL indicator while the candlestick chart is active. The indicator is drawn as three orange bands on the chart and visually presents how volatility changes alongside price movements.
Note: The default Bollinger setting is 20-period moving average + 2 standard deviation. This is the classic configuration recommended by John Bollinger and is the most widely used version.
Limitations of Bollinger Bands
- Insufficient on its own: Should be used together with momentum and trend indicators
- Based on past data: Does not guarantee future moves; it only shows the structure of current volatility
- Standard deviation assumption: Statistical interpretations such as 95% are not exact because market data does not always follow a normal distribution
- Measures only volatility: Does not tell which direction price will go; that decision is supported by other indicators and analysis
Note: When you see a Bollinger squeeze, looking at volume changes, the position of RSI and price formations together helps you assess the opportunity more reliably for a directional decision.
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