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Bollinger Bandwidth

Type

Trend indicator

Short introduction

The "Bollinger Bandwidth" indicator is a further development of the well-known Bollinger Bands. It was also developed by John Bollinger and is calculated from the difference between the upper and lower Bollinger Bands divided by the middle band. The default setting of the parameters corresponds to those of the Bollinger Bands.

Statement

If the price volatility increases, then the distance between the outer bands increases and so does the bandwidth. In times of decreasing price fluctuations, the distance between the outer bands decreases and thus the bandwidth decreases.

Formula/calculation

Bollinger Bandwidth = (Upper Bollinger Band - Lower Bollinger Band) รท Medium Bollinger Band

Interpretation

The Bollinger Bandwidth helps to distinguish these phases based on the observation that phases with little movement and phases with a lot of movement are replaced in the markets. Low values indicate weak market activity. The longer these phases last, the more likely it is that prices will move sharply. High values show that there is a lot of movement in the underlying.

The indicator can therefore indicate impending price movements, but it cannot predict the direction of these movements. The indicator signals the strength of the prevailing buying or selling pressure.

Default setting

  • Basis: 20-Day Moving Average
  • Standard deviation: double

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