What Are Bollinger Bands, and What Does Touching the Lower Band Mean?
How far the price is above the lower Bollinger Band (the 20-day average minus two standard deviations). Zero is on the band, negative is below it: low against its own last 20 days, which is not a promise of a bounce.
Contents (5 sections)
Bollinger Bands put an envelope around price: a 20-day moving average in the middle, and a band above and below it whose width follows the stock's own recent volatility. They answer one question: is today's price far from its recent average, measured in this stock's own terms?
How they are calculated
- Middle band: the 20-day simple moving average of the close.
- Upper band: the middle band plus two standard deviations of the last 20 closes.
- Lower band: the middle band minus two standard deviations.
Standard deviation measures how spread out the closes have been. A stock that has swung widely gets wide bands; a stock that has gone quiet gets narrow ones. That is the point of the tool: "far from average" is defined by each stock's own behaviour, not by a fixed percentage.
Reading them
| What you see | What it usually means |
|---|---|
| Price at or below the lower band | Price is unusually low against its own last 20 days |
| Price at or above the upper band | Price is unusually high against its own last 20 days |
| Bands narrowing (a squeeze) | Volatility has dried up; such periods tend to end with a larger move, in either direction |
| Price walking along a band | A strong trend: in a steady fall, price can sit on the lower band for weeks |
What they do not tell you
- That price will come back. A touch of the lower band means "low against the recent range", not "about to rise". In a downtrend the lower band falls with price and is touched again and again.
- Direction after a squeeze. Narrow bands say a move is likely, not which way.
- Anything about value. The bands know only the last 20 closes. A stock can be at its lower band and still expensive, or at its upper band and still cheap.
In Stock Compass
The rule indicator is price_vs_bb_lower, listed as Bollinger Band position. It is how far the price is above the lower band, as a percentage of the lower band:
- 0 means the price is exactly on the lower band;
- a negative number means it has closed below the band;
- a small positive number, such as under 2, means it is just above it.
The bands use 20 days and two standard deviations on daily closes. A common use is as one condition of a pullback rule, alongside a trend filter such as price above the 200-day average, so that "low against the last 20 days" is only acted on in a stock that is otherwise rising. Stop chasing the market discusses buying pullbacks by rule instead of by feel.
FAQ
Is touching the lower Bollinger Band a buy signal?
Not by itself. It says the price is low against its own last 20 days. In a rising stock that is often a pullback; in a falling one it happens repeatedly on the way down. That is why it is usually combined with a trend condition.
Why 20 days and two standard deviations?
They are the settings the indicator was published with and the ones most charts use. With them, roughly nine closes in ten fall inside the bands, so a close outside is notable without being rare.
What does a negative Bollinger Band position mean in Stock Compass?
The price is below the lower band. The number is the distance from the lower band as a percentage of it, so minus 1.5 means the price is 1.5 percent under the band.
Definition only — not investment advice.