Bollinger Bands Width

Bollinger Bands measure volatility by placing trading bands around a moving average. 

Study Type: Stand-alone

Description

These bands are charted two standard deviations away from the average, so as the average changes, the value of two standard deviations also changes. This value comprises the Bollinger Band Width, representing the expanding and contracting of the bands based on recent volatility.

Bollinger Band Width plots in a separate pane below the chart, whereas Bollinger Bands plot as an overlay to the chart.

During a period of rising price volatility, the distance between the two bands will widen (BB Width will increase). Conversely, during a period of low market volatility, the distance between the two bands will contract (BB Width will decrease).

There is a tendency for bands to alternate between expansion and contraction. When the bands are unusually far apart, that is often a sign that the current trend may be ending. When the distance between the two bands has narrowed too far, that is often a sign that a market may be about to initiate a new trend.

Parameters

• Period: (20) - the number of bars, or period, used to calculate the study. John Bollinger, the creator of this study, states that those periods of less than ten days do not seem to work well for Bollinger Bands. He says that the optimal period for most applications is 20 or 21 days.
• Deviations: (2) - or Band Width (the half-width of the band in terms of multiples of standard deviation).