CompanyGraph
Normalizes current price as a position between the lower and upper bands, exposing whether price sits at an extreme or near its statistical center.
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.