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