Bollinger Bands: formula, %B, squeezes and Pine Script v6 code

What it measures

Bollinger Bands wrap a moving average in an envelope whose width follows volatility. When price swings widely the bands spread apart; when it goes quiet they contract. The bands therefore describe two things at once: where price sits relative to its recent average, and how volatile the market has been.

John Bollinger developed them in the 1980s. Two derived values are worth knowing: %B, which tells you where price is inside the bands, and bandwidth, which measures how wide the bands are relative to the average.

The formula in words

1. Middle band: a 20-period simple moving average of the close.
2. Compute the standard deviation of the same 20 closes: a measure of how far they typically sit from their average.
3. Upper band = middle band + 2 × standard deviation. Lower band = middle band − 2 × standard deviation.
4. %B = (close − lower band) ÷ (upper band − lower band). It is 1 at the upper band, 0 at the lower band, and goes above 1 or below 0 when price closes outside.
5. Bandwidth = (upper band − lower band) ÷ middle band.

Pine Script's ta.bb() returns the three bands in one call, as the script below shows.

How traders read it

• Band touches are not signals by themselves. A close outside the upper band says price moved further than usual relative to the last 20 bars. In a range that can mean stretched; in a breakout it means strong.
• Mean reversion. Range traders look for a close back inside the bands after a move outside, often combined with an oscillator.
• Walking the band. In strong trends price can ride along the upper or lower band for many bars. Fading those moves is how band-based strategies take their worst losses.
• The squeeze. When bandwidth drops to its lowest level in a long time, volatility is compressed. Squeezes don't say which way the expansion will go, only that quiet periods tend not to last forever.
• %B for rules. Because %B is normalised, it is handy in code: "%B above 1" means a close above the upper band on any symbol.

Common settings

Pine Script v6 code

The complete, self-contained script is below. Copy it into a new indicator in TradingView's Pine Editor, or download the .pine file.

//@version=6
indicator("Bollinger Bands with %B and squeeze", shorttitle = "BB", overlay = true)

src        = input.source(close, "Source")
len        = input.int(20, "Length", minval = 2)
mult       = input.float(2.0, "Standard deviations", minval = 0.1, step = 0.1)
squeezeLen = input.int(120, "Squeeze lookback (bars)", minval = 10)

[basis, upper, lower] = ta.bb(src, len, mult)
bandwidth = (upper - lower) / basis
percentB  = (src - lower) / (upper - lower)

// A squeeze: bandwidth at its lowest level of the lookback window.
squeeze      = bandwidth <= ta.lowest(bandwidth, squeezeLen)
squeezeStart = squeeze and not squeeze[1]

plot(basis, "Basis", color = color.new(color.gray, 0))
upperPlot = plot(upper, "Upper", color = color.new(color.blue, 0))
lowerPlot = plot(lower, "Lower", color = color.new(color.blue, 0))
fill(upperPlot, lowerPlot, color = squeeze ? color.new(color.orange, 85) : color.new(color.blue, 92), title = "Band fill")

// %B and bandwidth appear in the data window.
plot(percentB, "%B", display = display.data_window)
plot(bandwidth, "Bandwidth", display = display.data_window)

closeAbove = ta.crossover(close, upper)
closeBelow = ta.crossunder(close, lower)

alertcondition(closeAbove, "Close above upper band", "{{ticker}} closed above the upper Bollinger Band ({{interval}})")
alertcondition(closeBelow, "Close below lower band", "{{ticker}} closed below the lower Bollinger Band ({{interval}})")
alertcondition(squeezeStart, "Squeeze starts", "Bollinger bandwidth hit a new low for the lookback on {{ticker}} ({{interval}})")

The bands are drawn on the price chart and the fill turns orange while a squeeze is active, so quiet periods stand out. %B and bandwidth are plotted to the data window only: hover over a bar to read them without cluttering the chart.

Three alert conditions are included: a close above the upper band, a close below the lower band, and the start of a squeeze.

Add it to your chart

1. Open any chart on TradingView and open the Pine Editor.
2. Create a new indicator, delete the template code and paste the script.
3. Click Save, then Add to chart. Change lengths and levels from the indicator's settings.

Stuck on an error? See how to add a Pine Script indicator to TradingView.

Pitfalls

• Fading every touch. In trends, closes outside the bands can continue for many bars. Decide in advance whether you are trading ranges or breakouts.
• Treating a squeeze as directional. It only says volatility is low. The break can go either way, and false breaks are common.
• Assuming a normal distribution. "Two standard deviations" suggests most closes stay inside the bands, but market returns have fat tails. Closes outside happen more often than textbook statistics imply.
• Copying settings across timeframes without checking. A 20-bar window is a month on daily bars and under two hours on 5-minute bars. The bands describe different things.

Related reading

• 8 backtesting mistakes that make a strategy look better than it is
• Pine Script alerts: alertcondition() vs alert(), messages, webhooks and frequency
• ATR Stop-Loss Calculator (free tool)
• Risk/Reward Calculator (free tool)

The script is an educational example: test it on your own markets before relying on it. Indicators describe the past; they don't predict the future. Trading involves substantial risk of loss and is not suitable for every investor. Edgoro is a software tool, not a broker or financial adviser: nothing it produces is investment advice, and past or backtested performance does not guarantee future results.