Bollinger Band width Technical Analysis and Bollinger Band width Forex Trading Signals
Developed by John Bollinger.
This indicator is derived from the original Bollinger indicator.
Bandwidth is a measure of the width of the Bollinger Bands.
Bandwidth = Upper Band - Lower 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 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 red line represents the lowest Bandwidth value for a previous number of periods.
This line also identifies periods of low volatility
Technical Analysis and 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 is a forex price breakout signal is generated by the 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.
Breakout Signal After Bandwidth Squeeze
However, this is a directionless indicator and needs to be combined with another indicator such as the moving average to determine the direction of the trend/ Breakout.