Bollinger band width forex
Securities with low volatility will have lower BandWidth values than securities with high volatility. This occurs when volatility falls to a very low level, as evidenced by the narrowing bands. The upper and lower bands are based on the standard deviation, which is a measure of volatility. The bands narrow as price flattens or moves within a relatively narrow range.
The theory is that periods of low volatility are followed by periods of high volatility. Relatively narrow BandWidth a. After a Squeeze, a price surge and subsequent band break signal the start of a new move. A new advance starts with a Squeeze and subsequent break above the upper band. A new decline starts with a Squeeze and subsequent break below the lower band.
BandWidth dipped below 10 to put the Squeeze play on in mid-June. Even though this level seems high, it is actually quite low for ALK. With the subsequent surge above the upper band, the stock broke out to trigger an extended advance. A horizontal line was added to the indicator window.
This line marks 8, which is deemed relatively low based on the historical range. The BandWidth indicator alerted traders to be ready for a move in mid-August. The stock obliged with a surge above the upper band and continued higher throughout September. The advance stalled in late September and BandWidth narrowed again in October. Notice how BandWidth declined below the lows set in August and then flattened out.
The subsequent break below the lower Bollinger Band triggered a bearish signal in late October. The Squeeze can also be applied to weekly charts or longer timeframes. Volatility and BandWidth are typically higher on the weekly timeframe than a daily timeframe. This makes sense because larger price movements can be expected over longer timeframes. As the consolidation narrowed and a triangle formed, Bollinger Bands contracted and BandWidth dipped below 10 in January Notice how BandWidth remained at low levels as the consolidation extended.
A bullish signal triggered with the breakout in July BandWidth also rose as prices moved sharply in one direction and Bollinger Bands widened. Chart 5 shows Honeywell HON with an extended trading range in the area.
There was a move to the upper band in May, but no breakout for a signal. Instead, HON clearly broke below the lower band to trigger a bearish signal in June This alerts chartists to prepare for a move, but direction depends on the subsequent band break. A squeeze followed by a break above the upper band is bullish, while a squeeze followed by a break below the lower band is bearish.
Be careful of head-fakes however. Sometimes the first break fails to hold as prices reverse the other way. However, this indicator is enough for trend analysis etc. Tips on how to use: 1. You can easily understand market volatility by using this indicator to analyze it.
You may want to reduce the number of positions when trading during these times. You can analyze whether a trend is present or not at a given moment. The Bollinger Band expands when the trend is occurring. As a result, you can expect further increase in the winning rate by combining it with a trend following method. Conversely, if the indicator value is low, it may be a range market.
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