What is it?
Bollinger Bands are like a rubber band around an asset’s price, showing where it’s likely to bounce or break out. They consist of a middle line (a moving average) and two outer bands that measure volatility. How is it used?
  • Overbought/oversold: Prices touching or exceeding the upper band may be overbought; touching the lower band may be oversold.
  • Volatility squeeze: When bands contract (low volatility), a breakout is likely. Wide bands indicate high volatility.
  • Mean reversion: Prices often return to the SMA after touching the bands.
How is it calculated?
  • Middle band: A Simple Moving Average (SMA), typically over 20 periods.
  • Upper band: SMA + (k × standard deviation of price over the same period).
  • Lower band: SMA - (k × standard deviation).
    The standard settings are a 20-period SMA and k = 2 (2 standard deviations).
Upper Band = SMA + (2 × StdDev)   Lower Band = SMA - (2 × StdDev) The above content is designed for informational purposes only, and is explicitly not investment advice. Algo Pilot is a US based technology company and not a bank, broker-dealer, or RIA. As such, Algo Pilot LLC does not provide investment advice and is not a member, SIPC. Brokerage services offered by 3rd parties are not directly affiliated with Algo Pilot LLC, and Algo Pilot users may choose the broker relationship that they desire.