Bollinger Bands and ATR: measuring volatility
After this lesson you can read Bollinger Bands (20, 2), recognise a squeeze, calculate true range and ATR, and place a stop about 1.5 x ATR away so that normal noise does not knock you out.
Bollinger Bands aur ATR: volatility ka hisaab
Bollinger Bands mein darmiyani line 20-period SMA hai, aur ooper neeche 2 standard deviation ke bands. Jab price zyada hilti hai to bands chaure ho jate hain, jab pur-sukoon ho to tang. Upper band ko chhoona 'mehnga' aur lower band ko chhoona 'sasta' hone ki daleel nahi. Mazboot trend mein price kai din band ke saath chalti hai. Squeeze batata hai ke volatility kam hai, direction nahi.
ATR yani Average True Range batata hai ke price aam taur par kitna chalti hai. True range teen cheezon mein sab se bari hai: high minus low, high minus pichla close, aur pichla close minus low. Stop ko takreeban 1.5 x ATR door rakhein. Entry $150 aur ATR $8 ho to stop $138 banta hai. Farah ka 1% stop aam harkat ke andar tha, is liye baar baar hit hua.
Sahih Muslim 1513 mein gharar wali bay se mana kiya gaya, yani woh sauda jis ke contract mein had se zyada ghair yaqeeni ya dhoka ho. Aksar ulama aam price ke utaar charhao ko gharar nahi kehte, kyunke asli cheez maloom qeemat par khareedi gayi. Volatility ek khatra hai jise napna zaroori hai, aur ATR wahi paimana hai.
- Bands volatility ke saath phailte aur simatte hain; squeeze direction nahi batata.
- ATR aam harkat napta hai; stop takreeban 1.5 x ATR par rakhein.
- Wide stop ka matlab chhota position, taake nuqsan ki hadd wahi rahe.
Poora sabaq neeche English mein hai. Quiz English mein hai; asaan alfaaz mein.
Farah, a freelance translator in Hyderabad, bought SOL at $150 and put her stop at $148.50, just 1% below. 'Tight stops mean small losses,' a friend had told her. She was stopped out the same day. She tried twice more that week, with the same result. Each loss was small, but three of them came to Rs 4,500 plus fees, and SOL ended the week above her first entry. At the time, SOL's average daily range was about 5% of its price. Her stop sat inside ordinary noise.
Bollinger Bands: an average with a volatility envelope
Bollinger Bands have three lines. The middle is the 20-period SMA. The upper band is the SMA plus 2 standard deviations of the last 20 closes, and the lower band is the SMA minus 2 standard deviations. Standard deviation measures how spread out prices have been. When price swings widely, the bands widen; when price is calm, they narrow.
A touch of the upper band is not 'too high', and a touch of the lower band is not 'too cheap'. In strong trends, price can walk along one band for days. On a normal bell curve about 95% of values fall within 2 standard deviations, but market prices have fatter tails: extreme days happen more often than the curve suggests, so band breaks are common.
- Bands widening with price hugging the upper band: a strong trend, not automatically a top.
- Price returning to the middle band in an uptrend: a normal pullback area.
- Very narrow bands, a squeeze: volatility is low and usually expands later, in either direction.
- A squeeze does not tell you the direction; the breakout close and its volume do.
ATR: how far price usually travels
Average True Range (ATR) measures the typical size of a candle, including gaps. True range is the largest of three numbers: high minus low, high minus the previous close, and the previous close minus low, ignoring minus signs. ATR 14 is the smoothed average of the last 14 true ranges. ATR does not show direction. It tells you how much room price normally needs.
That makes ATR the most practical everyday tool for stops. A stop closer than about one ATR from entry often sits inside normal noise. A common approach is a stop about 1.5 x ATR below entry, or below the nearest support zone, whichever fits the chart better. A wider stop means a smaller position, which you will calculate exactly in Lesson 23.
Worked example: bands, true range and an ATR stop
Bollinger: suppose SOL's 20-day SMA = $150 and the standard deviation = $6. Upper band = $150 + 2 x $6 = $162. Lower band = $150 - $12 = $138. Band width = $24, or 16% of the middle. If the deviation shrinks to $2.25, the bands run from $145.50 to $154.50, only 6% wide: a squeeze.
True range with a gap, on a PSX stock: yesterday's close Rs 140; today it opens higher and trades between Rs 146 and Rs 155. High - low = Rs 9. High - previous close = Rs 15. Previous close - low = Rs 6 (ignoring the minus sign). True range = Rs 15, because the overnight jump counts too.
ATR stop: SOL entry $150, ATR 14 = $8. Stop distance = 1.5 x $8 = $12, so the stop is $138, 8% below entry. Farah's 1% stop ($1.50) was less than one-fifth of a single average day's range.
Some people ask whether a very volatile asset is gharar. Sahih Muslim 1513 records that the Prophet (peace be upon him) forbade the gharar sale: a sale with excessive uncertainty or deception in the contract itself, such as an unknown item, an unknown price, or goods that cannot be delivered. Most contemporary scholars do not treat ordinary price swings as gharar, because when you buy a real asset at a known price, the contract is clear. Volatility is a risk to measure, not a defect in the contract. ATR is that measurement, and ignoring it is carelessness with your own wealth.
Education, not a fatwa. Where scholars differ, we say so. See what scholars say.
Setting stops by feel, such as a fixed 1% or 2%, without checking how much the asset normally moves. On a coin that swings 5% a day, a 1% stop is a donation to noise. The opposite mistake also hurts: a wide ATR stop with a full-size position, which turns a normal loss into a painful one.
Open the SOL daily chart with Bollinger Bands and ATR. Read today's ATR and calculate 1.5 x ATR as a % of price. Scroll back and find the narrowest bands of the last six months: how long did the squeeze last, and which way did price break out? Then switch the chart to BTC and compare its ATR % with SOL's. Which one needs the wider stop?
Measure SOL volatility →Key takeaways
- Bollinger Bands are a 20-period average plus and minus 2 standard deviations; they widen and narrow with volatility.
- A squeeze shows that volatility is low, not which way price will break.
- ATR measures normal movement; a stop around 1.5 x ATR keeps you out of ordinary noise, with position size adjusted to match.
Check yourself
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Barqish is an educational platform. Nothing here is financial advice or an instruction to buy or sell, and screening is not a fatwa. Spot ownership only: no leverage, no short selling. Updated 30 September 2026.