> For the complete documentation index, see [llms.txt](https://algotrade-1.gitbook.io/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://algotrade-1.gitbook.io/docs/indicators-library-and-guide/bollinger-bands-bb.md).

# Bollinger Bands (BB)

**Bollinger Bands** are a versatile volatility-based indicator that consists of a moving average (typically the 20-period SMA) and two bands plotted above and below it at a specified number of standard deviations. These bands expand and contract with market volatility and can help identify overbought/oversold conditions, breakouts, and potential reversals.

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#### Why Use Bollinger Bands in your strategy?

Bollinger Bands are excellent for understanding **price volatility** and identifying **high-probability reversal zones** or **breakout opportunities**. Here’s what makes them useful:

* Detects **volatility compression and expansion**.
* Helps spot **price extremes** where reversals are more likely.
* Signals **breakouts** when price breaks outside the band after a squeeze.
* Effective for both **range-bound and trending market conditions**.
* Visual and beginner-friendly, yet powerful when used with other indicators.

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#### BB Settings in the AlgoBuilder

When adding BB to your strategy inside the **AlgoBuilder**, you’ll be able to customize or use the following parameters:

| Setting                | Description                                                                    |
| ---------------------- | ------------------------------------------------------------------------------ |
| **Basis Length**       | Period used to calculate the central moving average (default: 20)              |
| **Source**             | Price source (close, open, high, low)                                          |
| **Std Dev Multiplier** | Number of standard deviations to plot the upper and lower bands (default: 2.0) |
| **Timeframe**          | Timeframe for the Bollinger Band calculation (e.g. 1m, 5m, 1h)                 |

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#### 📈 Example Usage for Entry Conditions

**Mean Reversion LONG:**\
Enter long when price touches or briefly dips below the lower Bollinger Band.\
→ Suggests price may be oversold and due for a bounce.

**Breakout LONG:**\
Enter long when price closes above the upper band after a squeeze.\
→ Indicates strong momentum and possible trend continuation.

**Mean Reversion SHORT:**\
Enter short when price touches or exceeds the upper Bollinger Band.\
→ Suggests overbought conditions and potential pullback.

**Breakout SHORT:**\
Enter short when price closes below the lower band after a squeeze.\
→ Can signal start of new bearish trend.

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#### 🎯 Take Profit / Exit (Long) Examples

**Exit at Middle Band (Basis):**\
Take profit when price reverts to the mid-band (moving average).\
→ A common mean reversion target.

**Exit if Price Closes Below Lower Band Again:**\
→ Might indicate further downside volatility and invalidation of the long setup.

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#### 🎯 Take Profit / Exit (Short) Examples

**Exit at Middle Band (Basis):**\
Take profit when price retraces back to the mid-band.\
→ A natural spot for mean reversion.

**Exit if Price Closes Above Upper Band Again:**\
→ Suggests momentum reversal or breakout invalidation.

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#### Tips for Using Bollinger Bands in the AlgoBuilder

* Combine BB with **RSI** to filter out false signals (e.g., only take BB longs if RSI is oversold).
* Use BB squeezes (tight band contraction) as a **pre-breakout signal**.
* Try longer periods (e.g., 50) to smooth out the bands for macro trend filtering.
* Great for building **hybrid strategies** — trend-following breakouts or counter-trend mean reversions.