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Bollinger Bands
The volatility envelope that reveals when stocks are overextended or ready to explode
APEX Weight10%
Period20 days
Multiplier2 std dev
TypeVolatility
Created1983 · John Bollinger
Live 14-Day Chart + Bollinger Bands (20,2)
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What Are Bollinger Bands?
Bollinger Bands are three lines plotted around a stock's price — a middle moving average and two outer bands set a fixed number of standard deviations away. When price moves far from the average, it's statistically unusual and likely to revert.
Unlike RSI and MACD which measure momentum, Bollinger Bands measure volatility. When the bands are tight, an explosive move is coming. When bands are wide, volatility is already elevated.
Upper Band
SMA20 + 2 standard deviations. Price above this is statistically unusual. Often signals overbought conditions.
Middle Band
Simple 20-day moving average. Acts as dynamic support/resistance. Price tends to revert to this line.
Lower Band
SMA20 − 2 standard deviations. Price below this is statistically unusual. Often signals oversold conditions.
THE FORMULA
Middle = SMA(20)
Upper = SMA(20) + 2σ
Lower = SMA(20) − 2σ
σ = standard deviation of last 20 closes
How Bollinger Bands Are Calculated
01
Calculate 20-day SMA
Sum the last 20 closing prices and divide by 20. This becomes the middle band and the anchor for both outer bands.
02
Calculate standard deviation
Measure how spread out the last 20 prices are from the average. High deviation = high volatility = wide bands.
03
Calculate upper band
Add 2 standard deviations to the SMA. Statistically, price should stay below this 95% of the time.
04
Calculate lower band
Subtract 2 standard deviations from the SMA. Statistically, price should stay above this 95% of the time.
05
Calculate bandwidth
Bandwidth = (Upper − Lower) / Middle × 100. Low bandwidth = squeeze. High bandwidth = high volatility. Key for detecting breakouts.
Bollinger Band Signals — What Institutional Traders Watch
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The Squeeze
Bands tighten to historically narrow width. Volatility compressed. A major move — up or down — is imminent. One of the most powerful setup signals in all of technical analysis.
Breakout Incoming
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Squeeze Breakout Up
Price breaks above upper band after a squeeze. High probability upside move. Volume confirmation makes this extremely reliable.
Strong Buy Signal
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Squeeze Breakout Down
Price breaks below lower band after a squeeze. High probability downside move. One of the most feared signals by long investors.
Strong Sell Signal
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Upper Band Walk
Price walks along the upper band for multiple periods. Contrary to popular belief this is NOT a sell signal — it means extremely strong bullish momentum.
Trend Continuation
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Lower Band Touch
Price touches the lower band in a downtrend. Potential mean reversion. Most powerful when RSI is also below 30 — high confidence reversal setup.
Reversal Watch
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Upper Band Rejection
Price touches upper band then immediately reverses. Strong overbought signal. Even stronger when accompanied by bearish MACD divergence.
Sell Signal
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%B Indicator
%B shows where price is relative to the bands: above 1.0 = above upper band, below 0 = below lower band, 0.5 = middle band. APEX uses this internally.
Position Measurement
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Band Width
Bandwidth measures how wide the bands are. Historical bandwidth lows predict volatility explosions. APEX monitors 6-month bandwidth lows as squeeze alerts.
Volatility Alert
Real Market Examples
NVDA
BAND SQUEEZE
Jan 2023
NVDA — BAND SQUEEZE
Bollinger Bands tightened to extremely narrow range before the AI breakout. Classic squeeze setup. Price exploded upward within 2 weeks — one of the most profitable squeeze breakouts in recent history.
⚡ APEX would flag: Bandwidth at historic low — volatility explosion imminent
How APEX Uses Bollinger Bands
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10% Weight in Composite Score
Bollinger Bands contribute 10% of the overall APEX score. Lower than RSI and MACD because Bollinger is a volatility indicator — less directional than momentum indicators.
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Squeeze Detection = Highest Alert
When bandwidth drops to a 20-day low APEX automatically flags a Volatility Squeeze Alert. This is one of the highest-conviction setup signals APEX produces.
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Band Touch + RSI Confirmation
An upper band touch alone scores 55/100. An upper band touch WITH RSI above 75 scores 85/100 — a near-certain sell trigger added to your Exit Plan.
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Cross-Referenced With Supply Chain
A lower band touch (potential buy) in a stock with healthy supply chain = high confidence reversal. Lower band touch with stressed supply chain = falling knife warning.
APEX Signal Weight Distribution
MACD+RSI
20%
RSI
18%
MACD
15%
MA Cross
12%
Bollinger ←
10%
Volume
10%
Sentiment
8%
Fundamentals
7%
⌇ Bollinger Squeeze alerts are APEX's highest-conviction setup signal
⚠️ Common Bollinger Mistakes
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Selling when price touches the upper band
✓ Fix: Price walking along the upper band in a strong trend is NOT a sell signal. John Bollinger himself warns against this. Wait for an actual rejection or reversal candle.
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Buying when price touches the lower band
✓ Fix: Lower band touch in a downtrend = catching a falling knife. Only buy lower band touches when the broader trend is up and RSI confirms oversold.
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Ignoring the squeeze
✓ Fix: The squeeze is the most powerful Bollinger setup and most traders miss it entirely. Low bandwidth = coiled spring. APEX flags this automatically — most platforms do not.
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Using Bollinger alone for entries
✓ Fix: Bollinger Bands show WHERE price is relative to its range. They do not show DIRECTION. Always confirm with MACD or RSI before acting on a band signal.
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Using default settings for all stocks
✓ Fix: The 20-period 2 standard deviation setting works for most stocks. But high-beta stocks like TSLA often require 2.5 std dev to reduce false signals. APEX adjusts this automatically.
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Thinking outside the band = always reversal
✓ Fix: Price can stay outside the bands for extended periods in strong trends. In a bull market, the upper band can be touched 10+ times before any reversal.
See Bollinger Bands in action on a real stock
APEX combines Bollinger with RSI, MACD and 5 other signals for the full institutional picture
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