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What Are Bollinger Bands and How They Measure Relative Volatility

Three lines that widen and contract based on real volatility — what '%B' is, and why touching the outer band doesn't mean 'buy' or 'sell'.

The definition

Bollinger Bands consist of three lines: a central moving average (typically 20 days), and an upper and lower band positioned two standard deviations of price volatility away from it. When volatility rises, the bands spread apart; when it falls, they contract.

%B — relative position within the bands

The %B measure shows where the current price sits relative to the bands: a value of 1.0 means the price is exactly at the upper band, 0.0 means it's at the lower band. Touching the outer band doesn't necessarily mean 'too expensive' or 'too cheap' — in a strong trend, price can 'ride' the outer band for an extended stretch.

Band contraction as a signal

When the bands contract sharply (unusually low volatility), it's sometimes considered a signal that a significant move may be approaching — but without indicating which direction. That's the difference between 'volatility is about to increase' and 'the price is about to rise'.

How StockIQ uses this

Bollinger Bands and %B are part of roughly 23 indicators in the Technical Analysis category (25% of the score), checked together with RSI, MACD, and trading volume — not as a standalone signal on their own.

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