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Category Name: Trading Technicals

» Sub-Category Name: Charting

Bollinger Band Width

By: vss2000.com

Bollinger Band Width ( BBWidth )

The Bollinger Band Width indicator charts the width of the Bollinger Bands. When the Bollinger Band Width increases in value, it indicates that the volatility of the underlying stock has also increased.

Created by John Bollinger, Bollinger Bands are similar to moving average envelopes. The difference between Bollinger Bands and envelopes is envelopes are plotted at a fixed percentage above and below a moving average, whereas Bollinger Bands are plotted at standard deviation levels above and below a moving average. Since standard deviation is a measure of volatility, the bands are self-adjusting, widening during volatile markets and contracting during calmer periods.

As with moving average envelopes, the basic interpretation of Bollinger Bands is that prices tend to stay within the upper and lower band. The distinctive characteristic of Bollinger Bands is that the spacing between the bands varies based on the volatility of the prices. During periods of extreme price changes (i.e., high volatility), the bands widen to become more forgiving. During periods of stagnant pricing (i.e., low volatility), the bands narrow to contain prices.

The first parameter is the number of days, the second is the number of standard deviations used to create the envelope.

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