Bollinger Band width Indices Analysis & Bollinger Band width Trading Signals
Developed by John Bollinger.
This stock indicator is derived from the original Bollinger indicator.
Bandwidth is a measure of the width of the Bollinger Band
Calculation
Band-width = Upper Band - Lower Band
Middle Band
This is an oscillator, based on the theory that stock trading price & volatility occurs in cycles.
Periods of high volatility is followed by periods of low volatility.
When volatility is high, bands are far apart, the bandwidth will also be wide apart.
When volatility is low, Bands are narrow and the band-width technical indicator also will be narrow.
The blue line represents the highest Band-width value for a previous number of periods.
This line also identifies periods of high volatility
The redline represents the lowest Band-width value for a previous number of periods.
This line also identifies periods of low volatility
Indices Analysis & Generating Trade Signals
Consolidation - Bollinger Squeeze
Bollinger Band-width is used to identify the squeeze, which is a consolidation period of trading price, after which the stock trading price then breaks out in a particular direction.
Signals are generated when there is a indices price break out signal is generated by the indicator starting to go up after touching the red line. When the bandwidth line starts to move upward it signifies that volatility is rising as the stock trading price is breaking out.
Squeeze
Break Out Signal After Band-width Squeeze
However, this is a directionless indicator and needs to be combined with another trading indicator such as the moving average to determine the direction of the trend/ Breakout.
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