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Bollinger Percent B

Bollinger Percent B

Bollinger %B shows where the current price sits relative to the Bollinger Bands. Values above 1 are above the upper band, below 0 are below the lower band.

Bollinger %B indicates where price is relative to the Bollinger Bands on a scale from 0 to 1 (with values outside this range possible). Created by John Bollinger, %B shows the position of the current close within the bands, helping traders identify overbought/oversold conditions and potential reversal points more precisely than visual band inspection alone.

The calculation:

%B = (Close - Lower Band) / (Upper Band - Lower Band)

Example:

Close: $52
Upper Band: $54
Lower Band: $46
%B = ($52 - $46) / ($54 - $46) = 0.75 (75%)

Interpreting %B values:

  • %B > 1.0: Price above upper band; extremely overbought
  • %B = 1.0: Price exactly at upper band
  • %B = 0.8-1.0: Price in upper portion of bands; overbought
  • %B = 0.5: Price at middle band; neutral
  • %B = 0.0-0.2: Price in lower portion of bands; oversold
  • %B = 0.0: Price exactly at lower band
  • %B < 0.0: Price below lower band; extremely oversold

Why %B matters:

  • Precise positioning: Quantifies exact location within bands
  • Divergence detection: Easier to spot divergences than visual inspection
  • Trading systems: Can be used in quantitative trading rules
  • Normalised measure: Comparable across different stocks and time periods

Trading applications:

  • Mean reversion: Buy when %B approaches 0; sell when approaches 1
  • Trend following: In uptrends, %B often stays above 0.5
  • Breakout confirmation: %B above 1 or below 0 confirms breakout
  • Exit signals: %B reversing from extremes signals potential exit

%B divergences:

  • Bullish divergence: Price lower low, %B higher low
  • Bearish divergence: Price higher high, %B lower high
  • Significance: Divergences often precede reversals

%B in different conditions:

  • Trending markets: %B tends to stay above 0.5 (up) or below 0.5 (down)
  • Range-bound: %B oscillates between extremes
  • Strong trends: %B can stay above 0.8 or below 0.2 for extended periods

%B converts the visual Bollinger Band display into a numerical indicator, enabling precise analysis, systematic trading rules, and easier comparison across securities and time periods.