Bollinger Bandwidth (20)

How it relates

Bollinger Mid (20)The 20-period Bollinger middle line is usually a moving average of the price. It is the center of the Bollinger Band.+Bollinger Bandwidth (20)=Bollinger Upper (20)The upper Bollinger band is the mid line plus a volatility buffer. Price touching it can signal strong upside or possible overextension.

Bollinger Mid (20)The 20-period Bollinger middle line is usually a moving average of the price. It is the center of the Bollinger Band.−Bollinger Bandwidth (20)=Bollinger Lower (20)The lower Bollinger band is the mid line minus a volatility buffer. Price touching it can point to strong downside or possible exhaustion.

Where it fits

Bollinger Bandwidth (20)→Volatility

Bollinger bandwidth measures how wide the bands are relative to the middle line. Wider bands mean higher volatility.

The calculation:

Bandwidth = (Upper Band - Lower Band) / Middle Band

What bandwidth indicates:

Low bandwidth: Narrow bands, low volatility, potential for breakout (squeeze)
High bandwidth: Wide bands, high volatility, potential for trend exhaustion
Increasing bandwidth: Volatility expanding, often during trends
Decreasing bandwidth: Volatility contracting, often before major moves

The Bollinger Squeeze:

Definition: When bandwidth reaches historically low levels
Significance: Periods of low volatility often precede significant price moves
Setup: Squeeze identifies potential breakout candidates
Direction: Squeeze doesn't predict direction; use other indicators

Trading applications:

Volatility cycles: Low volatility followed by high volatility is typical pattern
Breakout anticipation: Narrow bandwidth suggests consolidation ending
Trend exhaustion: Extremely wide bandwidth may indicate climax
Position sizing: Adjust position size based on volatility level

Monitor bandwidth relative to its own history. What counts as "narrow" or "wide" varies by security and market conditions.