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How Bollinger Bands Indicator Works

The Bollinger Bands indicator is calculated using standard deviation, with a default value of 2.

Bollinger Bands Index Calculation

The middle Bollinger bands line is a simple moving average

The upper band line is: Middle line + Standard Deviation

The lower Bollinger band line is: Middle line - Standard Deviation

The Bollinger Bands indicator employs a 20-period moving average as its optimal default setting. These bands are superimposed over the trading chart's price movements for analysis.

Standard deviation comes from stats and normal curves. One deviation from the mean covers 67.5% of price moves, up or down. Two deviations cover 95%.

The Bollinger Bands indicator applies a standard deviation of 2, covering 95% of price action while leaving just 5% outside its three bands. Traders often act when prices touch an outer band.

Bollinger Bands mainly track price volatility. The upper and lower bands aim to capture about 95% of closing prices for an index.

Bollinger Bands indicator compares and analyzes current closing price with the moving average MA of the closing price. The difference between these 2 prices is the volatility of the prevailing price compared to the moving average. The price volatility will increase or decrease the standard deviations of the bollinger bands indicator.

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