Education / Indicators / Bollinger Band Width

The Bollinger Band Width indicator is the distance between the upper and lower Bollinger Bands. They were developed by John Bollinger.

During trending markets the Bollinger Band Width indicator tends to rise as the bands that it measures expand away from each other.

On the same note, when a range bound condition ensues the Bollinger Band Width line tends to fall as the bands contract once again towards one another. Although there may not be a notional value to gauge low or high extremes of the Bollinger Band Width line, we can approximate the ultimate high and low points by simply noting recent trading activity on the chart. More importantly we should note the direction of the Width line, as it falls after visiting extreme highs, or rises after touching extreme lows. Chaikin's Volatility indicator measures the volatility of a security. High values indicate that prices are changing a large amount during the day. Low values indicate that prices are staying relatively constant. Note that both trending and level prices can have high or low volatility.

Calculation

The Bollinger Band Width indicator is the distance between the upper and lower Bollinger Bands.

Bollinger Bands are displayed as three bands. The middle band is a normal moving average. In the following formula, "n" is the number of time periods in the moving average (e.g., 20 days).



The upper band is the same as the middle band, but it is shifted up by the number of standard deviations (e.g., two deviations). In this next formula, "D" is the number of standard deviations.



The lower band is the moving average shifted down by the same number of standard deviations (i.e., "D").



Mr. Bollinger recommends using "20" for the number of periods in the moving average, calculating the moving average using the "simple" method (as shown in the formula for the middle band), and using 2 standard deviations. He has also found that moving averages of less then 10 periods do not work very well.