Bollinger Bands: Calculation and Price-Action Interpretations

Summary

This overview explains Bollinger Bands as a volatility and trend reference made from a moving-average center line and upper and lower bands offset by a multiple of price standard deviation. It gives the general calculation: compute a rolling simple moving average and standard deviation over a chosen lookback, then add or subtract the scaled deviation. A small Python example illustrates those calculations using closing prices.

The article describes two common interpretations: prices near the outer bands may indicate stretched conditions with possible reversals, while breaks beyond the bands may signal continuation. These are presented as possible readings, not reliable forecasts. The document supplies no performance tests and does not discuss how to resolve the ambiguity between reversal and breakout interpretations, parameter selection, or transaction costs. The bands therefore serve as an indicator framework requiring additional rules and validation.

Key ideas

• The middle Bollinger Band is a rolling simple moving average, while the outer bands are offset by scaled standard deviation.
• The lookback length and deviation multiplier determine the band calculation.
• The article treats proximity to an outer band as a possible stretched-price signal.
• A band break is also described as a possible breakout signal, leaving interpretation dependent on further rules.
• The example demonstrates calculation only and provides no trading-performance evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.