Bollinger Band Indicator and Price Volatility
When price volatility is high; prices close far away from the moving average, the Index Bollinger Bands width increases to accommodate more possible price action movement that can fall within 95% of the mean.
Bollinger Band will widen as price volatility widens. This will show as the Bollinger band bulges around the market price. When Stock Index Bollinger bands widen like this it is a continuation pattern & market will continue going in this direction. This is usually a continuation signal.
The Bollingers trading indicator illustration set-out below illustrates and shows the Bollinger bulge.
High Stock Price Volatility - Bollinger Bands Bulge
When price volatility is low: prices close closer towards the moving average, the width decreases to reduce the possible price action movement that can fall within 95% of the mean.
When price volatility is low price will begin to consolidate waiting for price to breakout. When Stock Index Bollinger bands indicator is moving sideways it is best to stay on the sidelines & not to place any trade transactions.
The Bollinger bands indicator exemplification is illustrated below when the Index Bollinger bands narrowed.
Low Price Volatility - Bollinger Bands Squeeze
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