John Bollinger: The Story Behind The Revolutionary Indicator

Who is John Bollinger?

Once aspiring to be a world-class film director, John Bollinger later became the creator of one of the most well-known financial market indicators, which traders still use today. His story is fascinating because he found success in a completely different field, and his contributions continue to benefit traders worldwide. Here are some interesting facts about his life and the famous indicator he developed.

A Brief Biography of John Bollinger

John Bollinger was born in 1950. As a child, he was passionate about photography and cinema. After finishing school, he enrolled at the New York School of Visual Arts, specializing in cinematography. While his studies went relatively smoothly, financial independence was a challenge. To support himself, he developed an interest in trading.

As Bollinger writes in his book Bollinger on Bollinger Bands, he first stepped into the financial world in 1976 when he joined Financial News Network (FNN) as a cameraman. Initially, he viewed this job as temporary, using it to pay his bills while sending out scripts for TV shows and films, hoping to be recognized as a filmmaker.

However, as he observed financial experts analyzing markets and reporting economic news, Bollinger became deeply immersed in finance. He gained extensive knowledge of economics, financial markets, and both technical and fundamental analysis. He also completed specialized courses in market analysis. Over time, he transitioned into a financial analyst role at FNN.

Through his work, Bollinger developed his own trading and analytical system. In the mid-1990s, he created software and algorithms for market analysis. Today, most traders recognize John Bollinger for the indicator he introduced for stock market trading.

Later, he founded Bollinger Capital Management, an investment firm specializing in asset management, which continues to operate today.

Bollinger Bands: A Key Technical Indicator

In his book, Bollinger explains that combining technical and fundamental analysis is essential for making rational stock market decisions. One of the key indicators he introduced relies on multiple moving averages. The general formulas for Bollinger Bands are as follows:

• Upper Band = Middle Band + (2 × Standard Deviation)
• Middle Band = 20-period Simple Moving Average
• Lower Band = Middle Band – (2 × Standard Deviation)

The core of the indicator is the simple moving average, which represents the medium-term trend with a period length of 20. The upper and lower bands form a “channel” around this average, positioned two standard deviations away, which measures market volatility. The concept is easiest to grasp when viewed on a chart.

Using Bollinger Bands in Trading

Bollinger Bands (BB) allow traders to assess both trend direction and price movement potential simultaneously. This opens up numerous opportunities for market analysis, including:

• Evaluating the current volatility level of an asset
• Identifying trends and ranging markets, predicting the beginning and end of directional price movements
• Estimating the probability of momentum surges in price charts
• Calculating price targets for setting profit-taking and stop-loss orders
• Generating reliable trading signals for opening and closing positions

Due to its versatility, Bollinger Bands are widely used by analytical agencies and major financial institutions, including banks, hedge funds, insurance firms, and brokerage companies.

In fact, Bollinger Bands can be considered a self-sufficient trading system. At the same time, they integrate well with other technical tools, significantly improving the chances of profitable trades.

Indicator Settings

Bollinger Bands are available as a standard indicator in almost all trading platforms. While customization options vary across platforms, the key adjustable parameters typically include:

Period

The calculation period N (indicator length, observation window) is the number of price bars used to build the indicator. It determines the central moving average line and the standard deviation of price movements.

Increasing the period improves the indicator’s filtering ability, reducing false signals, but it also introduces more lag, similar to any moving average-based tool.

John Bollinger recommends a 20-period setting for stock markets, which on a daily chart represents about one month of trading (20-22 business days). For daily trading, the period can range between 12 and 24. Investors often use longer periods, such as 240 or 365, to align with the number of trading or calendar days in a year. Traders should select a period that balances filtering capability and sensitivity to price movements.

Shift

The shift parameter moves the Bollinger Bands forward or backward relative to the price chart. A positive shift moves the bands ahead of the current candle, which can be useful for placing limit orders, stop losses, and take profits. However, shifting introduces a degree of inaccuracy when determining entry and exit points in real-time trading.

Most traders leave the shift at 0, but some use a 1-bar shift.

Price Type

Bollinger Bands are typically calculated based on closing prices. Some trading platforms don’t allow modifications to this setting, while others let traders use open prices, highs, lows, weighted averages, or other price sequences. In some cases, using extreme prices (highs/lows) improves indicator efficiency.

Moving Average Type

Classic Bollinger Bands are based on the Simple Moving Average (SMA), which offers strong filtering properties but has the highest lag. Some platforms allow traders to choose other moving average types.

Many traders prefer the Exponential Moving Average (EMA) or Linear Weighted Moving Average (LWMA) to improve signal quality while maintaining the analytical power of Bollinger Bands.

Deviation Coefficient

The deviation coefficient controls the width of the bands. Traders can adjust this setting freely.

• For daily stock market trading, Bollinger recommends a coefficient of 2
• For high-volatility assets, values between 3 and 5 may be more effective
• Some traders experiment with Fibonacci sequence numbers for unique results

Lowering the deviation coefficient increases sensitivity to price impulses but also produces more ambiguous signals.

Practical Tip

Bollinger Bands are a universal indicator, working effectively on all timeframes, from minute charts to yearly charts. Like moving averages, the indicator’s period should be increased for lower timeframes to compensate for market noise.