Bollinger Bands Trading Indicator & Price Volatility
When price volatility is high; prices close far away from the moving average, the Stock Index Bollinger Band width increases to accommodate more possible price action movement that can fall within 95% of the mean.
Bollinger Bands indicator will widen as price volatility widens. This will show as Bollinger band bulges around the market price. When Stock Index Bollinger bands widen like this it is a continuation pattern & price will continue moving in this direction. This is normally a continuation signal.
The Bollingers trading indicator example below illustrates the Bollinger bulge.
High Stock Price Volatility - Bollinger Band 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 trades.
The Bollinger bands indicator example is shown below when the Stock Index Bollinger bands narrowed.
Low Price Volatility - Bollinger Band Squeeze
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