Bollinger Band width Stock Analysis & Bollinger Band width Trading Signals

Developed by John Bollinger.

This stock technical indicator is derived from the original Bollinger technical indicator.

Bandwidth is a measure of the width of the Bollinger Bands

Calculation

Bandwidth = Upper Band - Lower Band

Middle Band

This is an oscillator, based on the theory that stocks 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 band width will also be wide apart.

When volatility is low, Bands are narrow & the bandwidth indicator will also 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 red-line represents the lowest Bandwidth value for a previous number of periods.

This line also identifies periods of low volatility

Stocks Analysis and How to Generate Trading Signals

Consolidation - Bollinger Squeeze

Bollinger Bandwidth is used to identify the squeeze, which is a consolidation period of stock price, after which the stocks price then breaks out in a particular direction.

Signals are generated when there's a stock 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 stocks price is breaking out.

Squeeze

Break-out Signal After Bandwidth Squeeze

However, this is a directionless indicator & needs to be combined with another indicator such as the moving average to determine the direction of the trend/ Breakout.