# Bollinger Bands

Bollinger Upper Band Breakout / Bollinger Lower Band Breakdown
​Bollinger Bands, one of the most used technical analysis algorithms, is an indicator developed by John Bollinger in the early 1980s. It is a powerful and reliable algorithm used to determine the direction of the trend and possible trend changes. According to Bollinger, prices move within the bands at a rate of 88-89%. For this reason, he states that price movements outside the Bollinger Bands are unusual. Bollinger Bands, which are determined according to the simple moving average, consist of three bands, upper, middle and lower, plotted two standard deviations (positively and negatively) away from a simple moving average (SMA) of a price.
• Upper Band = 20 period simple moving average + (20 period standard deviation x2)
• Middle Band = 20 period simple moving average
• Lower Band = 20 period simple moving average - (20 period standard deviation x2)
In general usage, the standard deviation of Bollinger Bands is 2 and the period is 20. Upper band resistance is considered as lower band support level.
Bollinger Band formula;
BOLU = MA(TP,n)+m∗σ[TP,n]
BOLD = MA(TP,n)−m∗σ[TP,n]
Where ;
BOLU = Upper Bollinger Band
BOLD = Lower Bollinger Band
MA = Moving average
TP (typical price)=(High+Low+Close)÷3
n=Number of days in smoothing period (typically 20)
m=Number of standard deviations (typically 2)
σ[TP,n]=Standard Deviation over last n periods of TP ​
Price movements generally tend to stay within the upper and lower bands of the Bollinger Band. If prices break out of the upper or lower Bollinger Band, it is considered that prices will correct and re-enter the channel. Therefore, it can be interpreted as a buy signal when prices touch the lower band, and a sell signal when they touch the upper band. However, if the price movement breaks the Bollinger Band and goes out of the band, it is evaluated as a movement in the direction of the breakout. If the price movement is out of the upper Bollinger band and an ascending trend is formed, this situation can be considered as a strong buy signal and a position can be taken accordingly. On the contrary, if the price movement leaves the Bollinger lower band and a falling trend is formed, this situation can be considered as a strong sell signal and positioned accordingly. The situation where the prices break the upper band or the lower band and leave the band in this way is considered as "Bollinger Breakout". In addition, the break of the middle band is interpreted as the current trend will change direction.
The contraction in the Bollinger Bands, the Bollinger Squeeze, is caused by the convergence of prices to the middle band and is considered the beginning of something. It does not provide information about the direction of the movement in prices, but sharp price changes are expected after the bands are tightened, that is, narrowed. In the contraction in the Bollinger Bands, if the price is close to the upper band, an upward breakout is expected. On the contrary, if the price is close to the lower band, a downward breakdown is expected. The expansion in the Bollinger Bands is caused by prices moving away from the middle band. Expansion is an indicator of the probability of the end of the trend, and contraction is an indicator of the probability of the beginning of the trend. In order to reduce the risk, investors can take positions according to which direction the expansion started after the contraction. A squeeze signals a period of low volatility and is considered by traders to be a potential sign of future increased volatility and possible trading opportunities.
While there is an uptrend, prices can exceed the upper band and continue their movement in this direction. While there is a downtrend, prices can go below the lower band and continue their movement in this direction.
In order to easily obtain Bollinger Breakout/Breakdown detections, you can create Alerts or Custom Signals through the Coinlegs system, and start autotrading bots on LegsBot by using the alerts you create.