Bollinger Bands
Bollinger Bands are two lines drawn above and below a moving average, at a distance that depends on the stock's volatility.
They were devised by John Bollinger in the 1980s. When the market is turbulent the bands widen, when it's calm they narrow. %B tells you where the price sits within the bands: 0% on the lower band, 100% on the upper one.
How it's calculated
Middle band = 20-period simple moving average. Upper band = average + 2 standard deviations of the 20 prices; lower band = average − 2 standard deviations. %B = (price − lower band) / (upper band − lower band).
Worked example
20-day average €50, standard deviation €1.50: upper band 50 + 3 = €53, lower band 50 − 3 = €47. With the price at €52.40, %B = (52.40 − 47) / (53 − 47) = 5.40 / 6 = 90%: the stock is close to the upper band.
How to read it
A price near the upper band indicates strength (or an excess), near the lower one weakness (or a possible rebound). Very narrow bands often signal a calm phase that precedes a large move.
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