Bollinger Bands Indicator & Price Volatility

When price volatility is high; stock index prices close far away from the moving average, the Bollinger Bands width increases to accommodate more possible price action movement which can fall within 95 percent of the mean.

Bollinger bands indicator will widen as price volatility widens. This will show as bollinger band bulges around the price. When the bollinger bands widen like this it is a continuation pattern and price will continue moving in this direction. This is normally a continuation signal.

The Bollinger bands indicator example illustrated below illustrates the Bollinger bulge.

High Price Volatility - Stock Index Bollinger Bands Indicator - Bollinger Bands Bulge

When price volatility is low: stock index prices close closer toward the moving average, the width decreases to reduce the possible price action movement which can fall within 95 percent of the mean.

When price volatility is low price will start to consolidate waiting for price to breakout. When the bollinger bands indicator is moving sideways it is best to stay on the sidelines and not to place any stock trades.

The Bollinger bands indicator examples is illustrated below when the bollinger bands narrowed.

Low Price Volatility - Stock Index Bollinger Bands Indicator - Bollinger Bands Squeeze