What is Bollinger Bands?
The Bollinger Bands indicator draws a channel around price. It has three lines:
- Middle band: a simple moving average of price, meaning the plain average of recent closes.
- Upper band: the middle band plus a multiple of the standard deviation, a measure of how widely recent prices spread around their average.
- Lower band: the middle band minus the same multiple.
When price swings widely, the standard deviation grows and the bands move apart. When price is calm, the bands move closer together. The indicator therefore shows volatility, meaning how much price is moving, and where price sits relative to its recent average. It does not predict direction.
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The formula
Let N be the lookback period and k the deviation multiplier.
| Line | Calculation |
|---|---|
| Middle band | SMA of the closing price over N bars |
| Upper band | Middle band + k × standard deviation of the same N closes |
| Lower band | Middle band − k × standard deviation of the same N closes |
Traders also use two derived readings:
- %b: where price sits inside the channel. At the lower band it is zero, at the upper band it is one, and above or below the bands it goes outside that range.
- Bandwidth: the distance between the bands divided by the middle band. It shows volatility as a single line, which makes squeezes easier to compare over time.
Neither is built into MetaTrader by default.
How to add Bollinger Bands in MT4 and MT5
In both MetaTrader 4 and MetaTrader 5:
- Open a chart of the instrument.
- Go to Insert → Indicators → Trend → Bollinger Bands.
- In the settings window, check Period (N), Deviations (k), Shift and Apply to (usually Close).
- Set colours and click OK.
The default Period and Deviations values are the classic settings John Bollinger published. Look at them in the dialog before you change anything. You can practise on a demo account without risking money.
How to read it: a drawn example
The sketch below is drawn by hand. It does not show real prices.
- Wide bands on the left: volatility was high.
- Squeeze in the middle: the bands contract to a narrow range. Volatility is low, and periods of low volatility are often followed by larger moves. The squeeze does not tell you the direction of that move.
- Expansion on the right: the bands open sharply as price breaks out of the range.
- Band walk: price closes repeatedly near or outside the upper band while the bands keep widening. This is how a strong trend looks on the indicator. A touch of the upper band is not automatically "too high."
Typical uses in a Bollinger Bands strategy
Traders usually combine the bands with other tools rather than use them alone:
- Mean reversion in ranges: in a sideways market, moves to a band often drift back toward the middle band. This works only while the range holds. Check the range with support and resistance.
- Squeeze breakouts: a narrow bandwidth flags a possible expansion. Many traders wait for a close outside the range and confirm it with structure or volume. See breakouts and false breakouts.
- Trend pullbacks: in a band walk, the middle band sometimes acts as dynamic support during pullbacks.
- Volatility gauge for stops: band width gives a rough idea of normal noise. The ATR indicator measures this more directly.
These are ways of reading the chart, not signals. No setting gives a reliable win rate.
Where Bollinger Bands mislead
- "Touch the band, price will reverse." In a trend, price can walk the band for a long time. Fading every touch can mean repeated losses.
- Fake squeezes: price can break out of a squeeze in one direction, then quickly reverse. Low volatility tells you something may happen, not what will happen.
- News and gaps: a sudden spike widens the bands after the move has already happened. The indicator reacts. It does not warn.
- Fat tails: the "most prices stay inside the bands" idea assumes a fairly normal distribution of prices. Markets produce extreme moves more often than that model suggests.
- Lag: the bands are built on an SMA, so they are a lagging indicator.
- Thin sessions: on quiet hours or illiquid instruments, a few bars can distort the deviation.
Parameter choices for experienced traders
- Period and multiplier move together. A shorter period makes the bands react faster. If you shorten N, a smaller k keeps the band coverage roughly comparable. If you lengthen N, a larger k does the same. Change both, not just one.
- Timeframe matters more than fine-tuning. The same settings behave differently on a lower and a higher chart. Use multiple timeframes to see whether a squeeze on a small chart sits inside a trend on a larger one.
- Apply to: Close is standard. Typical price smooths the bands slightly.
- Squeeze definition: judge "narrow" against the instrument's own history of bandwidth, not by eye on a single chart.
- Related channels: Keltner Channels use ATR instead of standard deviation. Bollinger Bands contracting inside Keltner Channels is a common squeeze filter. Donchian Channels and MA Envelopes are fixed-rule alternatives.
- Oscillator pairing: pairing the bands with RSI or divergence is common. Remember that both tools are built on the same price data.
- Overfitting: settings tuned to look perfect on past charts usually fail on new data. Test on out-of-sample periods.
Risk note
Leveraged forex and CFD trading can lose money fast, and an indicator does not change that. Size positions with risk management in mind. Before using any offshore platform, read about the legal position on our law and regulators page.
Frequent questions
What is Bollinger Bands in simple words?
It is a moving average with an upper and a lower band. The bands widen when price moves a lot and narrow when it is calm.
Is touching the upper band a sell signal?
No. In a strong trend, price can keep riding the upper band. Read a band touch together with trend and structure.
What are the default settings?
MetaTrader uses the classic Bollinger settings. You can see them in the Period and Deviations fields when you add the indicator.
What does a squeeze mean?
Volatility has dropped. A larger move often follows, but the squeeze gives no direction.
Do Bollinger Bands repaint?
The bands on closed bars do not change. The current bar's values move until the bar closes. See repainting indicators.
Can I use them on gold or indices?
Yes, the calculation works on any chart. Volatility differs by instrument, so judge band width against that market's own history. See technical analysis for related tools.