> ## Documentation Index
> Fetch the complete documentation index at: https://terminal.incrypto.ru/llms.txt
> Use this file to discover all available pages before exploring further.

# Bollinger Bands

> Volatility bands around a moving average showing overbought/oversold conditions.

# Bollinger Bands

Bollinger Bands are a volatility indicator consisting of a **middle band** (Simple Moving Average) and two **outer bands** placed at a specified number of standard deviations above and below the middle. The bands dynamically widen when volatility increases and narrow when volatility decreases, providing a visual envelope of "normal" price behavior.

## How It Works

The three components are calculated as follows:

```
Middle Band = SMA(Close, period)
Upper Band  = Middle Band + (stdDev × σ)
Lower Band  = Middle Band - (stdDev × σ)

where σ = standard deviation of Close over the last `period` bars
```

The standard deviation measures how much closing prices have varied from the mean over the lookback window. When prices are stable, σ is small and the bands are tight. When prices swing wildly, σ is large and the bands expand.

### Statistical Foundation

With `stdDev: 2` (the default), approximately **95%** of closing prices should fall within the bands under a normal distribution assumption. In practice, financial data is not perfectly normal (fat tails are common in crypto), so prices exit the bands more frequently than 5% — but each exit still represents a statistically significant deviation.

### Indicator Type

**Overlay** — Bollinger Bands are drawn directly on the price chart, wrapping around candlesticks.

## Settings

| Parameter    | Type   | Default   | Description                                                     |
| ------------ | ------ | --------- | --------------------------------------------------------------- |
| `period`     | number | 20        | Lookback period for the SMA and standard deviation calculation. |
| `stdDev`     | number | 2         | Number of standard deviations for the upper and lower bands.    |
| `color`      | color  | `#3b82f6` | Color of the middle band (SMA line).                            |
| `upperColor` | color  | `#60a5fa` | Color of the upper band line.                                   |
| `lowerColor` | color  | `#1d4ed8` | Color of the lower band line.                                   |
| `lineWidth`  | number | 1.2       | Thickness of all three band lines in pixels.                    |

### Parameter Combinations

| Period | StdDev | Character          | Use Case                                       |
| ------ | ------ | ------------------ | ---------------------------------------------- |
| 10     | 1.5    | Tight, reactive    | Scalping, quick mean-reversion entries         |
| 20     | 2.0    | Standard (default) | General-purpose swing and day trading          |
| 20     | 2.5    | Wider              | Reducing false signals on volatile pairs       |
| 50     | 2.0    | Smooth, slow       | Position trading, identifying major expansions |
| 50     | 3.0    | Very wide          | Only flagging extreme moves on higher TFs      |

<Tip>
  The default 20/2.0 combination works well for most situations. Only change these values if you have a specific reason — for example, widening `stdDev` to 2.5 on a highly volatile altcoin to avoid excessive band touches.
</Tip>

## Interpretation

### The Bollinger Squeeze

The most powerful Bollinger Bands signal is the **squeeze** — when bands narrow to their tightest point in recent history:

1. **Bands contract**: Volatility has dropped to a low. Price is consolidating in a tight range.
2. **Breakout**: Price breaks out of the squeeze, usually accompanied by a volume spike.
3. **Bands expand**: Volatility returns. The direction of the breakout indicates the new trend.

A squeeze often precedes the most explosive moves. The longer the squeeze persists, the more powerful the subsequent breakout tends to be.

### Band Walks

In a strong trend, price can "walk" along one of the outer bands:

* **Upper band walk**: Price consistently touches or exceeds the upper band. This is a sign of strong bullish momentum, **not** an automatic sell signal.
* **Lower band walk**: Price consistently touches or hugs the lower band. Strong bearish momentum, **not** an automatic buy signal.

Band walks typically end when price closes back inside the bands and the middle band begins to flatten.

### Mean Reversion Signals

In ranging (non-trending) markets, Bollinger Bands excel as mean-reversion indicators:

* **Price touches upper band** in a range → potential short entry, targeting the middle band.
* **Price touches lower band** in a range → potential long entry, targeting the middle band.
* The **middle band (SMA)** acts as the natural mean-reversion target.

The critical distinction is context: band touches in a trend are continuation signals (band walk), while band touches in a range are reversal signals (mean reversion). Determine the market context before acting on band touches.

### Bandwidth and %B

Two derived metrics help quantify Bollinger Band signals:

**Bandwidth** measures how wide the bands are relative to the middle:

```
Bandwidth = (Upper - Lower) / Middle × 100
```

Low Bandwidth values indicate squeezes. Monitoring Bandwidth over time helps identify when a squeeze is forming before it becomes visually obvious.

**%B** measures where price sits within the bands:

```
%B = (Close - Lower) / (Upper - Lower)
```

* `%B > 1.0`: Price is above the upper band.
* `%B = 0.5`: Price is exactly at the middle band.
* `%B < 0.0`: Price is below the lower band.

## Alerts

Bollinger Bands support the following **alert rules**:

| Alert Event   | Description                                  |
| ------------- | -------------------------------------------- |
| `upper_touch` | Price closes above or touches the upper band |
| `lower_touch` | Price closes below or touches the lower band |

Enable alerts in the indicator settings dialog under the **Alert** section. Set a cooldown to avoid repeated alerts during band walks.

<Tip>
  Price touching the bands is not an automatic buy or sell signal. In strong trends, price will walk along a band for extended periods. Always assess whether the market is trending or ranging before interpreting band touches as reversal signals.
</Tip>

## Combining with Other Indicators

| Companion       | Strategy                                                                 |
| --------------- | ------------------------------------------------------------------------ |
| **RSI**         | Band touch + RSI divergence = high-probability reversal                  |
| **Volume Bars** | Squeeze breakout + volume spike = confirmed expansion                    |
| **VWAP**        | Band touch near VWAP = strong confluence for mean reversion              |
| **MACD**        | Squeeze + MACD histogram growing = building breakout momentum            |
| **Delta**       | Lower band touch + positive delta = aggressive buying at oversold levels |

## Practical Considerations

* **Not a standalone system**: Bollinger Bands describe volatility, not direction. They tell you when the market is stretched, not which way it will go. Always combine with directional indicators or price action.
* **Crypto volatility**: Crypto markets are inherently more volatile than equities. The default 2.0 standard deviations may produce frequent band touches on lower timeframes. Consider 2.5 for altcoins.
* **Multi-timeframe**: A squeeze on the daily chart is more significant than one on the 5-minute chart. Check higher timeframes to calibrate expectations.
* **False squeezes**: Not every squeeze leads to a trend move. Some squeezes resolve with a brief spike followed by more ranging. Volume confirmation (a meaningful increase on the breakout bar) helps distinguish real breakouts from false ones.
* **Lookback startup**: The indicator needs at least `period` bars to calculate the first valid value. The standard deviation stabilizes after approximately `2 × period` bars.

## Common Mistakes

1. **Shorting upper band touches in uptrends** — band walks can persist for days. Wait for price to close back below the upper band and the middle band to flatten.
2. **Using in isolation** — Bollinger Bands do not predict direction. A squeeze tells you "something is about to happen," not "which way."
3. **Ignoring the middle band** — The SMA (middle) is often the strongest support/resistance on the chart and the primary mean-reversion target.

## Related Indicators

* [SMA](/en/indicators/classic/sma) — The middle band is an SMA; understanding SMA behavior helps interpret Bollinger Bands
* [RSI](/en/indicators/classic/rsi) — Momentum oscillator that pairs well with band touch signals
* [VWAP](/en/indicators/classic/vwap) — Volume-weighted mean for intraday confluence
* [MACD](/en/indicators/classic/macd) — Momentum confirmation for squeeze breakouts