Bollinger Band Bulge and Squeeze Analysis
The Bollinger Bands are self adjusting which means the bands widen and narrow depending in price volatility.
Standard Deviation is the statistical measure of the market volatility of price used in calculating the widening/narrowing of the trading Bollingers. Standard deviation will be higher when market prices are changing significantly and lower when the prices are calmer.
- When price volatility is high the Bollinger Band widen.
- When price volatility is low the Bollinger Band narrows.
The Bollinger Band Squeeze
Narrowing of trading Bollinger Band is a sign of price consolidation and is known as the Bollinger band squeeze.
When the Bollinger Bands show narrow standard deviation it's usually a time of price consolidation, and it is a trade signal that there'll be a price break-out and it shows traders are adjusting their trade positions for a new move. Also, the longer the prices stay within the narrow bands the greater the chance of a price break-out.
Bollinger Squeeze - The Bollinger Bands Squeeze - How to Trade the Bollinger Bands Squeeze
The Bollinger Bulge
The widening of Bollinger Bands is a sign of a price break out and is referred to as the Bollinger Bands Bulge.
Bollinger Bands that are far apart can serve as a trading signal that a market trend reversal is approaching. In the Bollinger bands indicator illustration explained & shown below, the trading Bollinger band get very wide as a result of high price volatility on the down swing. The trend reverses as prices get to an extreme level according to statistics & the theory of normal distribution. The "bulge" predicts the change to a downwards trend.
Bollinger Bulge - The Bollinger Bulge - How to Trade Bollinger Bands Bulge
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