close icon

Bollinger Bands Basics

Liked for their attractive appearance and easy interpretation, Bollinger Bands are in the top three most popular indicators. John Bollinger developed two bands that reflect volatility and are located over and under a moving average.

To determine volatility and measure it, Bollinger uses standard deviations, which change with the up and down movement of volatility.

Here’s the formulae used to calculate it:

Middle Band = 20-day simple moving average (SMA)

Upper Band = 20-day SMA + (20-day standard deviation of price x 2)

Lower Band = 20-day SMA – (20-day standard deviation of price x 2)


The band in the middle is a simple moving average based on the last 20 periods. The standard deviation also has a 20 period time frame. The two other bands are typically 2 standard deviations apart from the moving average line.

These are the standard setting used in almost all trading platforms but we have to point out that Bollinger Bands are indeed one of the indicators that traders tend to adjust quite often.

Bollinger Bands Example

John Bollinger himself makes several recommendations that can make it easier to use the indicator for longer timeframes.

If you want to cover 50 periods then you can increase the standard deviation multiplier from 2 to 2.1. He also advises that 10 period bands should have a smaller multiplier of 1.9.

Moves over or under the bands are NOT signals! They can be markers for strong volume, larger orders and being overbought or oversold but not exact tops or bottoms.

The calculation of the bands, according to its creator, should leave 89% of price action within them. Any move outside them is significant and there is a reason for it. But the most popular way to use the bands is to confirm support and resistance levels, as well as relatively small moves between the moving average and either the upper or lower band.

Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

4 Tips on How to Trade Large Positions

Trading large positions, moving serious money around, risking, but also profiting. That’s the image we have in our heads once we start trading (or even before). Making it big! But for most this is a just a destination and the journey towards it holds the keys to not only reaching it but also staying there.…

Read More »

Adding to Positions – How and Why?

Adding to positions while they’re still open isn’t something that’s usually a part of the initial trading plan. It’s more of an advanced skill and it can be used for both a winning or a losing trade. But what many traders underestimate is how this affects them in purely mental ways. When adding to a…

Read More »

Does the 10 000-Hour Rule Apply To Trading?

All good things come to those who study. At least that’s what parents say and it’s why some new traders start on an arduous journey of applying the famous 10 000-hour rule to their studies of the market. But is this number really relevant when it comes to trading forex, stocks and cryptocurrencies? To answer…

Read More »

How to Set Your Trading Station

Just like any new activity we take up, there are mistakes that come from inexperience. Whether it’s going to the gym and buying all the gizmos that tell you when you’re tired (in a visually pleasing and fancy way), or if you want to have a home brewery and you assemble a small factory in…

Read More »

Feeling Regret About Your Trades? Use it!

Just like with almost everything in life, trading can cause regret. Whether it’s for a missed opportunity or for a wrong decision, those little red and green numbers have the ability to push us into some pretty extreme emotions. Regret can control our behavior because it happens right after we’ve had a bad trade. It…

Read More »

Boredom in Trading: How to Overcome it?

There are times when there’s absolutely no boredom in trading but there are long periods when there’s no movement at all or your trading plan doesn’t allow opening a new positions. Other moments can actually be extremely exciting. The rush we get when we see a position become profitable is quite remarkable. The despair, anxiety…

Read More »

Breakeven Trades – How to Make the Most of Them

We all trade to make money. We focus our attention on the trades we made a huge profit on and we sweat over the ones that lost us part of our account. Breakeven trades don’t get so much attention. But what the majority of traders don’t realize is how important they actually are. First, let’s…

Read More »

More analyses