BB Overview
Bollinger Bands (BB) consist of a middle SMA band surrounded by upper and lower bands set at a specified number of standard deviations away. The bands dynamically expand during high volatility and contract during low volatility — providing both trend direction and volatility context.
Price touching or exceeding the bands signals statistical extremes: ~95% of price action falls within 2 standard deviation bands. Touches are potential reversal points in ranges or breakout continuation signals in trends.
How Bollinger Bands Works
Section titled “How Bollinger Bands Works”Core Concept
Section titled “Core Concept”- Calculate Middle Band: SMA of closing prices over n periods
- Calculate Standard Deviation: StdDev of closing prices over n periods
- Upper Band: Middle + (Multiplier × StdDev)
- Lower Band: Middle - (Multiplier × StdDev)
- Interpret: Band touches signal statistical extremes; band width indicates volatility
Key Characteristics:
- Dynamic Volatility = Bands expand/contract with market volatility
- Statistical Foundation = Based on standard deviation — mathematically grounded
- Dual Purpose = Functions as both trend indicator and volatility measure
- %B Metric = Normalizes price position within bands (0 = lower, 1 = upper)
Visual Interpretation
Section titled “Visual Interpretation”BB Behavior:
- Price touching upper band suggests overbought or bullish breakout
- Price touching lower band suggests oversold or bearish breakdown
- Narrowing bands (Bollinger Squeeze) signal upcoming volatility expansion
- Price typically stays within the bands ~95% of the time
Trading Signals Available on Reversion
Section titled “Trading Signals Available on Reversion”These are the signal names you select when configuring BB in the algorithm builder or via the MCP agent:
| Signal | Triggers When | Typical Use |
|---|---|---|
price_above_upperBand | Price crosses above the upper band | Overbought / breakout above — potential reversal or trend continuation |
price_below_lowerBand | Price crosses below the lower band | Oversold / breakdown below — potential reversal or trend continuation |
percentb_above_threshold | %B rises above threshold | Price position within bands — high = near upper band |
percentb_below_threshold | %B falls below threshold | Price position within bands — low = near lower band |
Display: Overlay (on price chart)
Category: Volatility
Threshold range: Price-based
Key Characteristics
Section titled “Key Characteristics”What Bollinger Bands Does Well:
- Dynamic Volatility Measurement: Bands adapt to changing market conditions
- Statistical Foundation: Based on standard deviation mathematics
- Squeeze Detection: Narrowing bands reliably precede breakouts
- %B Normalization: Standardized price position for algorithmic use
What to Watch Out For:
- Trend Riding: In strong trends, price can ride a band for extended periods
- Not Predictive of Direction: Band touches don’t indicate which way price will break
- Period Sensitivity: Different periods show different volatility cycles
When to Use Bollinger Bands:
- Mean Reversion: Trade band touches as reversal signals in ranging markets
- Breakout Confirmation: Price breaking through bands with volume confirms breakouts
- Volatility Assessment: Use band width to gauge current volatility regime
When NOT to Use Bollinger Bands:
- Strong Trending Markets: Price rides bands — touching isn’t a reversal signal
- Without Context: Always combine with momentum indicators for direction