What it is
John Bollinger created %B so the bands could be turned into a single number that is easy to test and compare. It turns 'price is touching the upper band' into '%B is 1.0', which works the same on any market or timeframe.
It does not show how wide the bands are. For that, traders use Bollinger Bandwidth alongside it, which is how squeezes are spotted.
How it is calculated
1. Middle band = 20 period simple moving average of the close. 2. Upper band = middle + 2 standard deviations of the last 20 closes. Lower band = middle minus 2 standard deviations. 3. %B = (close minus lower band) / (upper band minus lower band).
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| Length | 20 | 2 to 400 | How many candles the average and standard deviation cover. 20 is Bollinger's default. |
| Width | 2 | 0.5 to 5 | How many standard deviations wide the bands are. Wider bands mean %B reaches 0 and 1 less often. |
How to read it
How to trade it
- 1
Decide whether the market is ranging or trending, for example using the slope of the 20 period average on 1 hour gold.
- 2
In a range: buy when %B drops below 0 and then closes back above 0.
- 3
Stop beyond the candle's low, for example 6 to 10 points on gold.
- 4
Target the middle band (%B 0.5) for part of the trade and the upper band (%B 1) for the rest.
- 5
In a trend, do the opposite: treat a close above 1 as strength and buy pullbacks to %B 0.5 instead of selling the top.
The range buy is cancelled if %B closes back below 0 and the next candle makes a new low, which suggests a breakdown rather than a bounce.
WickSpeak writes a plain-English reading of %B on the live candle: what it is, where price sits inside the bands right now, how to trade it in a range or a trend, and what would prove it wrong. In Playbook, a condition can check when %B crosses above or below a level you set, is above or below a level you set, sits between two levels you choose, or is rising or falling, for example a 'closes back above 0' entry with a trend filter on a higher timeframe.
Best markets and timeframes
Works on every market and timeframe. Mean reversion setups suit 5 minute to 1 hour charts in ranging conditions; trend strength reads suit 1 hour to daily charts.
Common mistakes
- Selling every reading above 1. In a strong trend, price can ride the upper band for many candles.
- Ignoring band width. A %B of 1 inside very narrow bands is a much smaller move than in wide ones.
- Using it without knowing whether the market is ranging or trending.
Works well with
Questions traders ask
What does %B above 1 mean?
It means the close is above the upper Bollinger Band. In a range this is stretched; in a strong trend or breakout it shows strength.
What are the best Bollinger %B settings?
The standard is 20 periods and 2 standard deviations, the same as the bands. Some traders use 10 and 1.5 for faster signals or 50 and 2.5 for slower ones.
What is the difference between %B and Bollinger Bandwidth?
%B shows where price is inside the bands. Bandwidth shows how wide the bands are. Together they show both position and volatility.
Can %B be negative?
Yes. A reading below 0 means price closed below the lower band. Likewise it can go above 1.