Bollinger Bands
How Bollinger Bands are built from a 20-period average and standard deviation, with a Company A example in RM. Education only.
What is Bollinger Bands?
Bollinger Bands are three lines plotted around price: a 20-period simple moving average in the middle, with upper and lower bands two standard deviations away. The bands widen when closes vary more and narrow when they vary less. They describe volatility and relative position, not buy or sell signals.
How it is calculated
- Middle band: average of the last 20 closes.
- Upper band: middle band + 2 × standard deviation of those closes.
- Lower band: middle band − 2 × standard deviation.
Standard deviation measures how widely closes spread around their average. The 20-period length and the multiplier of 2 are conventions, not fixed rules.
How Malaysian investors use it
Bursa investors often check where a close sits within the bands and whether they are narrowing. Narrow bands mean calm recent trading. Thin ACE Market counters can show wide bands after just a few large trades.
Worked example: Company A (hypothetical)
Four closes are used here for simplicity, instead of the usual 20.
| Step | Calculation | Result (RM) |
|---|---|---|
| Middle band | (2.00 + 2.10 + 2.05 + 2.15) ÷ 4 | 2.075 |
| Standard deviation | root of average squared gap from middle | 0.056 |
| Upper band | 2.075 + 2 × 0.056 | 2.19 |
| Lower band | 2.075 − 2 × 0.056 | 1.96 |
Common mistakes
- Treating a touch of the upper band as an automatic reversal, or the lower band as an automatic rebound.
- Changing the length or multiplier, then comparing results with other charts.
- Reading a narrow squeeze as a forecast of direction.
Related terms
- Moving average – the middle band is a moving average.
- RSI – another indicator built from recent closes, measuring momentum.
- Volume – shows whether a band move came on heavy or light trading.
Where Finworld shows it
The technical chart includes Bollinger Bands in its indicator library, alongside moving averages and RSI, with drawing tools and saved layouts.
Frequently asked questions
Are Bollinger Bands the same as support and resistance?
No. The bands come from recent closes and widen with volatility, while support and resistance are zones drawn from past reversals.
Why do the bands widen and narrow?
They widen when recent closes spread further from their average, and narrow when closes cluster tightly.
Can Bollinger Bands tell me when to act?
No. They describe recent volatility and where a close sits, not what price will do next.
See how this fits into Finworld Software, or book a demo.
Finworld provides market education and research tools only. This is not investment advice. Market data is end-of-day.
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