volatility indicator
Bollinger Bands (Bollinger Bands)
Bollinger Bands consist of a middle SMA(20) band with upper and lower bands at ±2 standard deviations. They measure volatility and relative price levels.
Formula
Middle Band = SMA(20) Upper Band = SMA(20) + (2 × StdDev) Lower Band = SMA(20) - (2 × StdDev)
Common strategies
- Mean reversion: Price touching the lower band may bounce back to the mean; upper band may reverse down.
- Bollinger squeeze: Bands contracting tightly indicates low volatility, often followed by a breakout.
- Band ride: In strong trends, price can "ride" the upper or lower band for extended periods.
How CommonQuant uses it
CommonQuant pre-calculates Bollinger Bands(20, 2) on all timeframes. DSL strategies can reference bb_upper(), bb_middle(), and bb_lower().
Frequently asked questions
What is a Bollinger squeeze?
A squeeze occurs when the upper and lower bands come very close together, indicating low volatility. It often precedes a sharp breakout.
Are Bollinger Bands good for crypto?
Yes, especially for detecting volatility expansion. Crypto's high volatility makes the bands wider, and squeezes often precede major moves.