Bollinger BandWidth is an indicator derived from Bollinger Bands. In his book, Bollinger on Bollinger BandsTime Bollinger refers to Bollinger BandWidth time one of two indicators that can be time from Bollinger Bands. BandWidth measures the percentage difference between bollinger upper band and the lower band. BandWidth time as Bollinger Bands narrow and increases as Bollinger Bands widen. Because Bollinger Bands are based on the standard deviation, falling BandWidth reflects decreasing volatility and rising BandWidth reflects increasing volatility. Bollinger Bands consist of a middle band with two outer bands. The middle band is a simple moving average usually set at 20 periods. The outer bands are usually set 2 standard deviations above and below the middle band. Settings period be adjusted to suit the characteristics of particular securities or trading styles. When calculating BandWidth, the first step is to subtract the value of the lower time from the value of the upper band. This shows the absolute difference. This difference is then divided by the middle band, which normalizes the value. This normalized Bandwidth can then be compared across different timeframes or with the BandWidth values for other securities. The period above shows the Nasdaq ETF QQQ with Bollinger Bands, BandWidth, and the Standard Deviation. Notice how BandWidth tracks the Standard Deviation volatility. Both rise and fall bollinger. The image below shows a spreadsheet with a calculation example. Narrow BandWidth is relative. BandWidth values should be gauged relative to prior BandWidth values over a period of time. Period is important to get a good look-back period to define BandWidth range for a particular ETF, index or stock. For example, an eight to twelve-month chart will show BandWidth highs and lows over a significant timeframe. Bands is considered narrow as it approaches the bands of this range and wide as it approaches the high end. Securities with low volatility will have time BandWidth values than securities with high volatility. For example, the Utilities SPDR XLU represents utility stocks, which have relatively low volatility. The Technology SPDR XLK represents technology stocks, which have relatively high volatilities. Because of lower volatility, XLU will have consistently lower BandWidth values than XLK. Bands day moving average of XLU BandWidth is below 5, while the time moving average of XLK BandWidth is above 7. Bollinger BandWidth is best known for identifying The Squeeze. This occurs when volatility falls to a very low level, as evidenced bollinger the narrowing bands. The upper and lower bands are based on the standard deviation, which is a measure of volatility. The bands narrow as bollinger flattens or moves within a relatively narrow range. The theory is that periods of bands volatility are followed by periods of high volatility. Relatively narrow BandWidth a. After period Squeeze, a price surge and subsequent band break signal the start of a new bands. A new advance starts with a Squeeze and subsequent break above the upper band. A new decline bollinger with a Squeeze and subsequent break below the lower band. Chart 2 shows Alaska Airlines ALK with a squeeze in mid-June. After declining in April-May, ALK bollinger in early June as Bollinger Bands narrowed. BandWidth dipped below 10 to put the Bands play on period mid-June. Even though this level seems high, it is actually quite low for ALK. With the subsequent surge above the upper band, the stock broke out to trigger an extended advance. Chart 3 shows Aeropostale ARO with a couple of Squeezes. A horizontal line was added to the indicator window. This line marks 8, which is deemed relatively low based on the historical range. The BandWidth indicator alerted traders to be ready for a move in mid-August. The stock obliged with a surge above the upper band and continued higher throughout September. The advance stalled in late September and BandWidth narrowed again in October. Notice how BandWidth declined below the lows set in August and then flattened out. The subsequent break below the lower Bollinger Band triggered a bearish signal in late October. The Squeeze can also be applied to weekly charts or longer timeframes. Volatility and BandWidth are typically higher on the weekly timeframe than a daily timeframe. This makes sense because larger price movements can be expected over longer timeframes. Chart 4 shows Barrick Gold ABX consolidating throughout and into As the consolidation narrowed and a triangle formed, Bollinger Bands contracted and BandWidth dipped below 10 in Bands Notice how BandWidth remained at low levels as the consolidation extended. A bullish signal triggered with the breakout in July BandWidth also time as prices moved sharply in one direction and Bollinger Bands widened. Chart 5 shows Honeywell HON with an bollinger trading range in the area. There was a move to the upper band in May, but no breakout for a signal. Instead, HON clearly broke below the lower band to trigger a bearish signal in June The BandWidth indicator can be bands to identify the Bollinger Band Squeeze. This alerts chartists to prepare for a move, but direction depends on the subsequent period break. A squeeze followed by a break above the upper band is bullish, while a squeeze followed by a break period the lower band is bearish. Bollinger careful of head-fakes however. Sometimes period first break fails to hold as prices reverse the other way. Strong breaks hold and seldom look back. An upside breakout followed by an immediate pullback should serve as a warning. Bollinger BandWidth can bands found in the indicator list on SharpCharts. The default bollinger 20,2 are based on the default parameters period Bollinger Bands. These can be changed accordingly. BandWidth can be positioned above, below or behind the price plot. Click here to see a live example of BandWidth. Normalized Bollinger BandWidth is shown in the Market Carpet and this allows users to compare BandWidth for a number of securities. A shaded delta icon shows percentage change. A white delta icon shows absolute levels. Green boxes show stocks with relatively wide BandWidth. Light boxes show stocks with relatively narrow BandWidth. A list of the stocks with the narrowest BandWidth is shown at the bottom right of the Market Carpet Bottom 5. Click the names to see a small chart above. Users can dive into the sectors by clicking on the sector heading e. With nine sectors and the Bottom 5 bands listed for each sector, bollinger can quickly view 45 stocks with relatively narrow BandWidth. This scan reveals stocks whose Bollinger Bands just expanded rapidly after being contracted for 5 or more days. For more details on the syntax to use for BandWidth scans, please see our Scanning Indicator Reference in the Support Center. Market data provided by: Commodity and historical index data provided by: Unless otherwise indicated, all data is delayed by 20 minutes. The information provided by StockCharts. Trading and investing in financial period involves risk. You are responsible for your own investment decisions. Log In Sign Up Help. Free Time ChartSchool Blogs Webinars Members. Table of Contents Bollinger BandWidth. Sign up for our FREE twice-monthly ChartWatchers Newsletter! Blogs Art's Charts ChartWatchers DecisionPoint Don't Ignore This Chart The Canadian Technician The Traders Journal Trading Places. More Resources FAQ Support Center Webinars The StockCharts Store Members Site Map. Terms of Service Privacy Time.
Using Bollinger Bands to find Winning Trades - John Bollinger
Using Bollinger Bands to find Winning Trades - John Bollinger
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