Bollinger Bands width Technical Analysis & Bollinger Bands width Signals
Developed by John Bollinger.
This indicator is derived from the original and initial Bollinger technical indicator.
Bandwidth is a measure of width of Bollinger Band
Calculation
Bandwidth = Upper Band - Lower Band
Middle Band
This is an oscillator technical indicator, 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 also will be wide apart.
When volatility is low, Bands are narrow and the band-width trading indicator also will be narrow.
The blue line represents the highest Band-width value reading for a previous number of periods.
This line also identifies the periods of high volatility
The red-line represents the lowest Bandwidth value reading for a previous number of specified periods.
This line also identifies periods of low market volatility
FX Technical Analysis and How to Generate Trading Signals
Consolidation - Bollinger Squeeze
Bollinger Bandwidth is used to identify the squeeze, which's a consolidation period of price, after which the price then breaks-out in a particular direction.
The Signals are derived & generated when there is a price breakout - signal is derived and generated by the indicator beginning to go up after touching the red line. When the bandwidth line starts and begins to move up it signifies that market volatility is rising as the price is breaking-out.
Squeeze
Breakout Signal After Bandwidth Squeeze
However, this is a directionless indicator & needs to be combined with another technical indicator such as the MA(Moving Average) to figure out the direction of the trend/ Break Out.
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