Reading the chart

Bollinger bands: how far is the price from normal?

Bollinger bands wrap a channel around the price. The middle line is the normal level, and the two bands show how far the price usually strays from it. Turn them on with the BOLL button: you'll see a dotted line in the middle and a dashed band above and below.

Equinor over six months with Bollinger bands. The bands widen when the price swings a lot and narrow when it calms down.

How they're built

• The middle line is the 20-candle moving average: the same line as the MA20 (see moving averages).
• The upper and lower bands sit two standard deviations above and below it. A standard deviation measures how much the closing prices have been spreading out around the average.
• So the bands are not a fixed percentage. They stretch when the price is jumpy and shrink when it is quiet.

Tip: As a rule of thumb, the price spends most of its time inside the bands. A close outside them is unusual, which is exactly why traders pay attention to it.

Reading the bands

• Near the upper band: the price is high compared with its recent normal. In a strong uptrend, the price can "walk" along the upper band for weeks.
• Near the lower band: the price is low compared with its recent normal. In a downtrend it can walk along the lower band.
• Back to the middle: in a calm, sideways market, prices that touch a band often drift back towards the middle line. That's the idea behind using the bands to buy low and sell high within a range.

The squeeze

When the bands pinch together, the price has been unusually calm. Quiet periods tend not to last: a squeeze is often followed by a bigger move. The catch is that the squeeze tells you a move may be coming, not which way it will go. Watch which band the price breaks out of.

Try it

Open Equinor with Bollinger bands

Find a spot where the bands were narrow. What happened next? Then look at the times the price closed outside a band: did it come back inside quickly, or keep going in the same direction?

Where it misleads

Touching the upper band doesn't mean "sell", and touching the lower band doesn't mean "buy". In a strong trend the price can hug one band for a long time, and fading it means fighting the trend. The bands also only describe the past 20 candles: news like quarterly results can blow straight through them. Use them to judge whether a price is stretched, together with the trend and the RSI.

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