Bollinger % B

Written by Miroslav Marinov

Miroslav Marinov

Miroslav Marinov, a financial news editor at TradingPedia, is engaged with observing and reporting on the tendencies in the Foreign Exchange Market, as currently his focus is set on the major currencies of eight developed nations worldwide.

, | Updated: October 30, 2024

Bollinger % B is derived from John Bollingers original Bollinger Bands indicator. % B defines the price of a trading instrument relative to the upper and lower Bollinger band. Six relationship levels can be outlined:

– if the close price is at the upper band of the Bollinger, then % B is 1
– if the close price is at the lower band of the Bollinger, then % B is 0
– if the close price is above the upper band of the Bollinger, then % B is above 1
– if the close price is below the lower band of the Bollinger, then % B is below 0
– if the close price is above the middle band of the Bollinger (20-day SMA), then % B is above 0.50
– if the close price is below the middle band of the Bollinger (20-day SMA), then % B is below 0.50

Bollinger % B is calculated as follows:

% B = ((Close Price – Bollinger Lower Band) / (Bollinger Upper Band – Bollinger Lower Band)) x 100

The default setting for % B is based on the default settings for Bollinger bands (20,2).

% B is used in order to identify overbought and oversold conditions. As with the majority of momentum oscillators, a trader should look for short-term oversold conditions, when the intermediate-term trend is a bull one. He/she should look for short-term overbought conditions, when the intermediate-term trend is a bear one.

When % B moves above 1, this is referred to as an overbought condition. When % B moves below 0, this is referred to as an oversold condition. At times, however, overbought and oversold readings may not generate reliable sell and buy signals. There may be a shallow pullback, after which the major trend may resume. John Bollinger describes a situation, when prices “walk the band” during strong trends. In a strong bull trend, prices can walk up the upper band and in rare cases touch the lower band. In a strong bear trend, prices can walk down the lower band and in rare cases touch the upper band.

Chart Source: VT Trader