Bollinger Band

Developed by John Bollinger, the Bollinger Band shows the price of the stock with an upper and lower band (standard deviation) shown with a 21-day simple moving average.

Standard Deviation is a model of volatility.

  • larger volatility is presented with a larger band (more room for growth, but equally for loss)
  • smaller band means less volatile.

Oversold & Overbought

Some people believe that:

  • as the price of the stock moves to the upper band == Overbought
  • the more it moves to the lower band == Oversold

The Squeeze

When the bands contract, this is called a squeeze.

  • period of lower volatility
  • many take as a signal for future increased volatility and trading

When the bands move further apart

  • larger risk for them to move apart again
  • may be a good time to exit a trade.

These conditions are not trading signals. They don’t indicate when the change will take place, or the direction they’ll move.

The math

Bollinger Bands consist of:

  • an N-period moving average (MA)
  • an upper band at K times an N-period standard deviation above the moving average (MA + Kσ)
  • a lower band at K times an N-period standard deviation below the moving average (MA − Kσ)

N and K are usually 20 and 2.

Other averages can be used, such as the exponential moving average.


A 2007 study that spanned from 1995 to 2005 showed no evidence of consistent performance over the standard “buy and hold” approach, but a “contrarian Bollinger Band” (reversal of the strategy) yielded positive results.

The band may be more effective in Chinese markets.