What are Bollinger Bands (BOLL)?
Bollinger Bands (BOLL) are an indicator developed by the technical analyst John Bollinger in the 1980s that shows both the volatility and the relative level of the price at the same time. They consist of a moving average as the middle band and two bands at a certain standard deviation distance below and above that average. The distance between the bands widens and narrows according to the volatility of the market.
The structure of Bollinger Bands
Bollinger Bands consist of three lines:
- Middle band: The moving average of the price (usually 20 periods)
- Upper band: Middle band + (standard deviation × multiplier, usually 2)
- Lower band: Middle band - (standard deviation × multiplier, usually 2)
Standard deviation is the statistical measure of the distance of the price from the average. Thanks to this structure, the bands change shape automatically according to the volatility of the price.
How are Bollinger Bands read?
The behavior of the bands gives clues about the state of the market:
- Narrow bands (squeeze): Low volatility; the price is compressed and a large move may be approaching
- Wide bands: High volatility; there is a strong move in the market
- Price close to the upper band: A relatively high level in the short term
- Price close to the lower band: A relatively low level in the short term
- Price returning to the middle band: A tendency to approach the average
The price touching a band is not directly a buy or sell signal; it is a position that needs to be assessed in the context of volatility.
Areas of use for Bollinger Bands
Detecting volatility
The bands moving closer to each other is called a Bollinger squeeze. This may show that the market is preparing for a strong move in the near future. Which direction the move will take cannot be understood from the bands alone; it is interpreted together with other indicators or the news flow.
Mean reversion strategy
When the price touches the upper or lower band, it may show a tendency to return to the average. This strategy works better in a market compressed into a sideways band, while it can be misleading in strong trends.
Trend confirmation
In a strong upward trend the price can stay around the upper band for a long time; in a strong decline it can move around the lower band. This behavior confirms the strength of the trend.
How do I turn on Bollinger Bands on Paribu?
To turn on Bollinger Bands, the chart type needs to be candle. You can tap the BOLL label in the indicator bar above the chart on the market detail screen of an asset. On the Buy/Sell screen you need to tap the Indicators option on the Chart tab and mark BOLL on the screen that opens.
The indicator is drawn directly over the candles as three bands in orange tones; the middle band appears darker and the upper and lower bands lighter, and the area between the bands stays lightly filled. Thanks to this appearance you can follow at a glance when the bands narrow and when they widen.
Note: Bollinger Bands are calculated in technical analysis with a 20 period moving average + 2 standard deviations; this is the classic structure suggested by John Bollinger. The indicator settings are fixed on Paribu, and there is no period or standard deviation setting in the app.
The limitations of Bollinger Bands
- Not sufficient on their own: They should be used together with momentum and trend indicators
- Based on past data: They do not guarantee future moves; they only show the structure of the current volatility
- The standard deviation assumption: Because market data does not always follow a normal distribution, statistical interpretations such as 95% are not definite
- They measure only volatility: They do not tell you which direction the price will take; that decision is supported by other indicators and analysis
Note: When you see a Bollinger squeeze, looking together at the change in volume, the position of RSI and price patterns helps you assess the opportunity more reliably before deciding on a direction.
Frequently asked questions
Should I sell if the price touches the upper band?
No. Touching a band is not directly a buy or sell signal; it shows that the price is at a relatively high level in the short term. In strong upward trends the price can move around the upper band for a long time.
What does it mean when the bands narrow?
The bands moving closer to each other is called a Bollinger squeeze and shows that volatility has fallen. A strong move usually follows a squeeze; however, the bands alone do not tell you the direction of the move.
Can I change the Bollinger settings?
The indicator settings are fixed on Paribu; there is no period or standard deviation setting in the app. You can only turn the indicator on and off.
Which indicators are Bollinger Bands used with?
The bands measure only volatility and do not indicate direction. For this reason it is recommended that they be read together with momentum indicators — especially RSI and MACD — and with trading volume.
Related articles
- What are technical indicators and how do you use them? — Adding and removing indicators
- What is MA (moving average)? — The average at the center of the bands
- What is RSI (relative strength index)? — Momentum and overbought zones
- What is MACD? — Momentum and trend change
- What is trading volume (VOL)? — Reading the volume indicator
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