How to Read Bollinger Bands: Bandwidth, the Squeeze and %B

The formula behind the bands

Bollinger Bands consist of a middle line and two lines above and below it. The middle band is the 20-bar SMA of the close; the upper band is the middle band + 2 × standard deviation, and the lower band is the middle band − 2 × standard deviation. The standard deviation measures how widely those same 20 closes are scattered around their mean; you get it by taking the square root of the average squared deviation. The calculation uses the population standard deviation, which divides by 20, the same as TradingView's default Bollinger Bands. Using the sample standard deviation, which divides by 19, makes the bands about 2.6% wider. The bands widen when price swings a lot and narrow when it is quiet.

The claim that '95% stays inside the bands'

The explanation that 95% of prices fall inside the bands holds only if you assume prices are normally distributed around the mean. Under a normal distribution, the probability of landing outside the mean ± 2 standard deviations is about 4.6%. But prices lean to one side as they follow trends, and crypto returns see extreme moves more often than a normal distribution would predict (this is described as having fat tails). Of the 29,946 daily bars of 10 Binance coins measured for this course, 2,353 closed above the upper band and 1,516 below the lower band, about 13% combined.

%B and bandwidth

%B shows where the close sits within the bands. Since %B = (close − lower band) ÷ (upper band − lower band), a value of 1 means the close is at the upper band, 0.5 at the middle band and 0 at the lower band. Bandwidth is (upper band − lower band) ÷ middle band, which in effect turns the standard deviation into a proportion of price, so coins at different price levels can be compared. The Bollinger Band Squeeze Scanner shows these two values along with where the current bandwidth ranks within the last 120 bars.

• %B > 1: the close is above the upper band
• %B = 0.5: the close is at the middle band
• %B < 0: the close is below the lower band
• Bandwidth = 4 × standard deviation ÷ middle band (with a multiplier of 2)

The squeeze: when the bands narrow

A state in which bandwidth has become very narrow compared with its own past is called a squeeze. John Bollinger pointed to the moments when bandwidth was the narrowest it had been in the last several months, while the approach known as the TTM Squeeze uses the Bollinger Bands moving inside the Keltner Channel as its criterion. This site's squeeze scanner sets the Keltner Channel at EMA20 ± 1.5 × ATR(20). Volatility tends not to stay at one level for long and to drift back toward its usual level, so very narrow bands tend to widen again at some point. But a squeeze does not tell you when or in which direction price will move, and price sometimes heads off in the direction of the first break and then turns the other way (see the article on sideways markets).

Walking the bands: what a strong trend looks like

In a strong uptrend, the close repeatedly finishes right at the upper band or above it. This is called walking the bands, or a band walk. The bands are calculated from the same prices, so as price rises, the middle and upper bands rise with it; in the figure below, %B stays above 0.7 the whole time. Reading a touch of the upper band as a pullback signal in a stretch like this would put you on the wrong side for the entire trend. In a downtrend, the opposite appears: price walks down along the lower band.

Measured: after closes outside the bands

On the daily bars of 10 coins on Binance (each from its Binance listing date to September 2026), after bars that closed above the upper band, the share whose close was higher 20 bars later was 55.1%, above the 50.4% baseline measured over all bars, and the median was +2.35% (baseline +0.15%). A close above the upper band did not mean a pullback was coming. After closes below the lower band, the share higher 1 and 5 bars later was above the baseline, but 20 bars later it matched the baseline. Closes outside the bands also tend to come in runs, so keep in mind that the samples are not independent of each other.

• Baseline (all bars): 50.6% after 1 bar, 50.5% after 5, 50.4% after 20
• Above the upper band (2,353 times): 50.4%, 52.0%, 55.1%
• Below the lower band (1,516 times): 57.6%, 56.8%, 50.4%
• BTC daily, 20 bars later: above upper 59.8%, below lower 45.1%, baseline 53.7%

Limits and common misconceptions

Bollinger Bands draw the average of 20 closes and how widely they are spread; they are not limits on where price can go. Touching the upper band only summarizes that price is high relative to the last 20 bars, and a squeeze says only that price swings may grow, not in which direction. Changing the period and the multiplier also changes how often closes land outside the bands. You can check past performance, fees included, with the Bollinger reversal strategy in the Crypto Strategy Backtester, but there is no guarantee that the results from one period will hold in another.