Knowledge · Terms · Bollinger Bands

Bollinger Bands

Indicator indicator
Bollinger Bands (volatility envelope)
A moving average (SMA-20) ± k standard deviations. The bands breathe with volatility. Touches of the outer bands count as extremes — the basis for mean-reversion or breakout logic.

What are Bollinger Bands?

Developed by John Bollinger in the 1980s. Three lines that span a statistically "normal" price range:

Middle = SMA(close, period)            # usually 20
Upper  = Middle + k · stdev(close, period)   # k usually 2.0
Lower  = Middle − k · stdev(close, period)

Because the width comes from the standard deviation, the bands expand in volatile phases and contract in calm ones. Under a normal-distribution assumption ~95% of prices would lie within ±2σ — in reality less, due to fat tails, especially in crypto.

Two opposite uses

  1. Mean reversion: price outside the band = extreme → a return to the middle is likely (works in ranges).
  2. Breakout / squeeze: contracting bands + a breakout = the start of a trend (works in trends).

Which one works depends on the regime — the central weakness of naive Bollinger systems.

How Botty uses Bollinger

  • Bands as parametric cache series: data/indicator_cache.py (bb_sma, bb_std).
  • Entry bb_extreme (strategies/conditions/entries.py): previous close outside the band, current close back inside → mean reversion. Deliberately a range entry — to be paired with range_filter (max ADX).
  • Full strategy docs: Bollinger Band Mean Reversion.

Crypto note

On 1h BTC, price often "rides" the bands during a trend, i.e. 20/2.0 produces too many false signals. Often better: 20/2.5 or 50/2.0, combined with a range filter.