Bollinger Bands
A volatility envelope: 20-period moving average plus and minus two standard deviations.
Definition
Created by John Bollinger in the 1980s, Bollinger Bands plot a moving average with two volatility-based bands above and below. The bands widen during high volatility and contract during low volatility. The "Bollinger squeeze" — bands narrowing dramatically — often precedes large moves. Price touching the upper band is not automatically a sell signal in trends; in fact, "walking the band" is a sign of strong momentum.
Formula
Middle Band = SMA(close, 20)
Upper Band = SMA(close, 20) + 2 * stdev(close, 20)
Lower Band = SMA(close, 20) - 2 * stdev(close, 20)
%B = (close - Lower) / (Upper - Lower)
Bandwidth = (Upper - Lower) / MiddleWorked example
TSLA closes at $245. 20-day SMA = $230, 20-day stdev = $7. Upper band = 230 + 14 = $244, lower = $216. Today’s close pierces the upper band: %B ≈ 1.04. Combined with RSI 78, this signals overheated conditions and a likely mean-reversion bounce.
How ARIA Analyst uses it
ARIA detects Bollinger squeezes automatically (Bandwidth in the lowest 10% of the last 6 months) and surfaces them as breakout-watch candidates in the Trade Setup module.
Related terms
Average True Range (ATR)
A volatility measure based on the daily true range, used widely for stop placement and sizing.
Volatility (σ)
Standard deviation of returns — the most common dispersion-based risk measure.
Relative Strength Index (RSI)
A 0-100 momentum oscillator measuring the speed and magnitude of recent price changes.
Exponential Moving Average (EMA)
A moving average that weights recent prices more heavily — faster than the SMA.
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