Bollinger %B

Name Type Prerequisite Use Cases
Bollinger %B (%B) Momentum OHLC Data Identifying specific breakout or mean-reversion triggers.

Definition

Bollinger %B (Percent B) quantifies a security's price relative to the upper and lower Bollinger Band. It acts as an oscillator, indicating where the price is within the bands.

Mathematical Equation

\[ \%B = \frac{\text{Price} - \text{Lower Band}}{\text{Upper Band} - \text{Lower Band}} \]

  • \%B = 1: Price is at the Upper Band.

  • \%B = 0: Price is at the Lower Band.

  • \%B > 1: Price is above the Upper Band.

  • \%B < 0: Price is below the Lower Band.

Special cases

  • Maximum possible value: Unbounded (typically near 0 to 1)
  • Minimum possible value: Unbounded
  • Behavior: Oscillates around 0 and 1. Values > 1 mean price is above the upper band, < 0 means below the lower band.

Visualization

Bollinger %B

Trading Significance

  1. Overbought/Oversold: Readings above 1.0 (or near 1.0) can signal overbought conditions, while readings below 0.0 (or near 0.0) can signal oversold conditions.

  2. Trend Identification: In a strong uptrend, price tends to hug the upper band, keeping %B typically above 0.5.

  3. Divergence: Divergences with MFI or RSI can validate reversals using %B levels.