A normalised reading of where price sits within the Bollinger Bands, where 1 is the upper band, 0 is the lower band and 0.5 is the middle.
Percent B converts the visual position of price inside bollinger-bands into a number, so it can be compared across instruments and used in rules without reference to the price scale. Readings above 1 mean price closed outside the upper band.
Because it is bounded and mean-reverting in appearance, it is often misused as an oscillator with fixed thresholds. Closing above the upper band is not overbought; in a strong trend it is normal and can persist for many bars.
A more defensible use is divergence-style comparison: price making a higher high while percent B makes a lower high means the new high is less extended relative to volatility than the last, which is a genuine observation rather than a threshold guess.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Divergence between price and RSI. RSI measures how one-sided recent price moves have been on a 0–100 scale. Here price sets a higher peak while RSI sets a lower one, so the second push carried less momentum than the first.The stochastic oscillator. The stochastic shows where each close sits inside the recent high-to-low range, on a scale of 0 to 100. Readings above 80 mean closes are hugging the top of that range and below 20 the bottom; the circle marks the fast line turning up through the slow one.
Educational only, not advice. Spotted an error? Post in Site Feedback.