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 trading indicator, based on the theory that price and volatility occurs in cycles.
Periods of high volatility are 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 band-width technical indicator also will 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 Band-width 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 band-width 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.
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