Bollinger Bands: dispersion, squeezes and band walks
Bollinger Bands place a dispersion envelope around an average.
Before this lesson
These lessons provide background; you can still read this page now.
What the indicator measures
Bollinger Bands place a dispersion envelope around an average. Their width reflects variation in the selected closing-price window. A narrow envelope says recent closes were relatively concentrated; it does not reveal the direction or timing of a later move. Price can remain near an outer band during a trend.
Calculation and units
TradingHub uses an SMA basis and population standard deviation of the same N closes: upper = SMA + multiplier × deviation, lower = SMA − multiplier × deviation. Dividing squared deviations by N matters when comparing software using a different estimator. The default multiplier is a parameter, not a probability guarantee.
Worked educational example
If the mean of a hypothetical window is 100 and its standard deviation is 2, multiplier 2 gives bands 104 and 96. The eight-unit total width describes those inputs. It does not establish that future price will remain inside or that a touch of 104 is a profitable short.
Reading it without overclaiming
A squeeze can precede expansion in either direction, continue for a long time or end in a failed breakout. Repeated touches can describe a band walk rather than a reversal. Adding more correlated envelopes does not solve uncertainty. Distinguish a closing-price breach from a temporary wick crossing the band.
How TradingHub implements it
Built-in defaults are period 20, deviation multiplier 2, using close prices. Studio’s Bollinger template also defaults to 20 and 2 and uses population deviation. The basis needs a complete window. Line thickness changes only the drawing; period and multiplier change the calculation.
Comparisons that matter
Keltner Channels use ATR around an EMA, while Bollinger Bands use dispersion around an SMA here. A close sequence can have low dispersion while showing intrabar ranges, so the two envelopes can disagree for legitimate reasons. Compare their definitions before calling that disagreement a signal.
A reproducible chart review
Open the existing Trading chart and choose the same market, interval and closed observation time as your comparison. Record every calculation parameter before changing one at a time. Match source fields, history length and the bar window. Native indicators calculate from the supplied visible slice; Indicator Studio calculates from its available chart snapshot. A difference after panning may therefore be a window or warmup effect rather than a new market event.
Limits and next lesson
The illustration uses constructed candles, not a dated market observation or a backtest. A live candle can change until it closes. Missing history, volume units and implementation conventions limit comparisons. No indicator guarantees a direction, an execution price or protection from loss. Use the related lessons to separate definitions, observed values and possible explanations; a correct quiz records learning progress, not trading competence.
Knowledge check
Do two-standard-deviation bands guarantee a fixed share of future prices inside them?
- Yes; every market obeys a fixed normal distribution
- Yes; a band touch guarantees reversal
- No; the multiplier is not a future probability guarantee
Show explanation
Historical dispersion and a selected multiplier do not establish a future return distribution.
Interactive checking needs JavaScript; the lesson and explanation remain readable.
Primary sources and scope
Educational scenarios are not execution guarantees, forecasts or personal recommendations. Check current product rules at their source.
Content revised: . Editorial responsibility: TradingHub. No independent professional certification is claimed.