Bollinger Band width Trading Analysis and Bollinger Band width Trading Signals

Developed by John Bollinger.

This indicator is derived from the original Bollinger technical indicator.

Bandwidth is a measure of the width of the Bollinger Band.

Calculation

Bandwidth = Upper Band - Lower Band

Middle Band

This is an oscillator, based on the theory that price and volatility occurs in cycles.

Periods of high volatility is followed by periods of low volatility.

When volatility is high, bands are far apart, the band width will also be wide apart.

When volatility is low, Bands are narrow & the bandwidth indicator also will not be narrow.

The blue line represents the highest Bandwidth value for a previous number of periods.

This line also identifies periods of high volatility

The redline represents the lowest Bandwidth value for a previous number of periods.

This line also identifies periods of low volatility

XAUUSD Analysis & 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 when there a price breakout signal is generated by indicator starting to go up after touching the red-line. When the bandwidth line starts to move up it signifies that 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 such as the Moving Average to figure out the direction of the market trend/ Break out.