Bollinger Band width Indices Technical Analysis and Bollinger Band width Trading Signals

Developed by John Bollinger.

This stock indices 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 stock indices trading 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 bandwidth will also be wide apart.

When volatility is low, Bands are narrow and 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 redline represents the lowest Bandwidth value for a previous number of periods.

This line also identifies periods of low volatility

Indices Technical Analysis & Generating Trading Signals

Consolidation - Bollinger Squeeze

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

Signals are generated when there is a indices trading 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 stock indices trading 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 figure out the direction of the trend/ Breakout.