Bollinger Bands: How to Use Them in Your Trading Strategy

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Bollinger Bands is a popular technical indicator used by traders to help identify possible price actions and volatility. Developed by John Bollinger in the 1980s, it consists of a moving average and two standard deviation bands that are placed above and below the moving average. In this blog post, we’ll explore the basics of Bollinger Bands and how to use them in your trading strategy.

How are Bollinger Bands Calculated?

Bollinger Bands consist of three lines: the middle line is the moving average, and the upper and lower lines are the standard deviation bands. The bandwidth, or the distance between the upper and lower lines, is determined by the volatility of the asset being traded. When volatility increases, the bands widen, and when it decreases, the bands narrow.

Here’s how to calculate Bollinger Bands:

  • Middle Band: 20-day Simple Moving Average (SMA)
  • Upper Band: 20-day SMA + (20-day Standard Deviation (SD) x 2)
  • Lower Band: 20-day SMA – (20-day SD x 2)

How To Use Bollinger Bands in Your Trading Strategy

Bollinger Bands are used to identify volatility, trends, and potential reversals. Here are a few ways you can incorporate them into your trading strategy:

Trend Identification

Bollinger Bands provide a visual representation of the market’s trend by showing if it’s trending upward, downward, or remaining flat. When the upper band is moving upward, and the price is above the middle band, it indicates an uptrend. Conversely, when the lower band is moving downward, and the price is below the middle band, it indicates a downtrend.


Bollinger Bands are also effective at identifying volatility in the market. When the bands widen, it indicates that volatility has increased, and we can expect more erratic price movements. On the other hand, if the bands narrow, it shows a decrease in volatility and could signify that the market is preparing for a breakout in either direction.


Bollinger Bands are commonly used to identify potential price reversals. If the price touches the upper band, it suggests that the market is overbought, and the price may soon reverse. Conversely, when the price touches the lower band, it can signal that the market is oversold, and a rally may be imminent.

Bollinger Bands: Tips and Tricks

Now let’s look at some pro tips and tricks for using Bollinger Bands in your trading strategies:

Combining Bollinger Bands with Other Indicators

Bollinger Bands work best when used with other indicators that complement its effectiveness. For example, traders can use Bollinger Bands alongside the Relative Strength Index (RSI) to identify overbought and oversold levels more accurately.

Pay Attention to the Bandwidth

As mentioned earlier, the bandwidth is the distance between the upper and lower bands. When the bandwidth is narrow, it indicates that the market is consolidating and is preparing for a breakout. Traders should keep an eye on the bandwidth to anticipate price movements.

Use Multiple Timeframes

Traders should not rely solely on Bollinger Bands on one timeframe. It’s best to use them on multiple timeframes to get a more comprehensive view of the market’s condition. For instance, using Bollinger Bands on the daily and hourly timeframe can provide a better understanding of the asset’s behavior.


Bollinger Bands are a versatile technical indicator that can provide valuable insights into market trends, volatility, and potential reversals. Remember to use them in conjunction with other technical indicators and to use them on multiple timeframes. Most importantly, have a well-defined trading plan and risk management strategy to minimize losses and maximize profits. Start incorporating Bollinger Bands in your trading strategies today and see how they can help improve your trading decisions.

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This post contains affiliate links. If you use these links to register at one of the trusted brokers, I may earn a commission. This helps me to create more free content for you. Thanks!