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The upper Bollinger Band sits two standard deviations above the middle band. Prices touching it may indicate the asset is relatively overbought.
The Bollinger Upper Band is the top boundary of Bollinger Bands, calculated as the 20-period simple moving average plus two standard deviations of price. Created by John Bollinger, this band represents a statistically significant upper boundary that price typically respects. When price touches or exceeds the upper band, it indicates that price is relatively high compared to recent history.
The calculation:
Upper Band = SMA-20 + (2 × Standard Deviation of price over 20 periods)
Example:
SMA-20: $50 Standard Deviation: $2 Upper Band: $50 + ($2 × 2) = $54
Why the upper band matters:
- Overbought indicator: Price at upper band is extended to the upside
- Resistance zone: Often acts as dynamic resistance
- Volatility measure: Distance from middle band shows volatility
- Trend strength: Price consistently riding upper band shows strong trend
Interpreting price at upper band:
- Touch and retreat: Price may be overbought; watch for reversal
- Walk the band: Strong trends see price stay near upper band
- Breakout above: May signal extraordinary strength or potential reversal
- Squeeze breakout: Price breaking upper band after squeeze indicates direction
Trading applications:
- Mean reversion: Consider selling when price reaches upper band
- Trend following: In uptrends, buy pullbacks to middle band
- Breakout trading: Upper band break after squeeze signals bullish move
- Stop placement: Place stops beyond upper band for short positions
Band width significance:
- Wide bands: High volatility; larger price swings expected
- Narrow bands (squeeze): Low volatility; breakout may be coming
- Expanding bands: Volatility increasing; trend developing
- Contracting bands: Volatility decreasing; consolidation
Common mistakes:
- Automatic sell signal: Price at upper band doesn't always mean sell
- Ignoring trend: In strong uptrends, price stays near upper band
- Band walking: Trending markets can "walk" along the band
The upper band is dynamic—it adjusts with volatility. During volatile periods, bands widen; during quiet periods, they narrow. This makes Bollinger Bands adaptive to changing market conditions, unlike fixed overbought levels.