What is BBW(Bollinger Bands Width) Indicator?
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What is BBW indicator?
Bollinger Bands Width (BBW) is a technical analysis indicator derived from the standard Bollinger Bands indicator. The creator of Bollinger Bands, John Bollinger, introduced BBW in 2010.
Bollinger Bands are a volatility indicator which creates a band of three lines which are plotted in relation to a security’s price. The Middle Line is typically a 20 Day Simple Moving Average. The Upper and Lower Bands are typically 2 standard deviations above and below the SMA (Middle Line). Bollinger Bands Width serve as a way to quantitatively measure the width between the Upper and Lower Bands. BBW can be used to identify trading signals in some instances.
Calculation
Bollinger Bands Width = (Upper Band – Lower Band) / Middle Band
Applied rules
The Squeeze
One of the most well-known theories in regard to Bollinger Bands is that volatility typically fluctuates between periods of expansion (Bands Widening) and contraction (Bands Narrowing). With this in mind, the major trading signal generated by Bollinger Bands Width is known as The Squeeze.
- The Squeeze setup is very straightforward and consists of two steps:
- There is a period of low volatility. This means that the bands are narrow and the price is moving relatively sideways.
- The low volatility period is followed by a surge in volatility and the price breaks through the Upper Band or falls through the Lower Band signifying a change in the sideways movement and the beginning of a new directional trend.
- Bullish BBW Squeeze
- BBW drops.
- Price breaks through the Upper Band which starts a new upward trend. Volatility also increases.
- Bearish BBW Squeeze
- BBW drops.
- Price falls below the Lower Band which starts a new downward trend. Volatility also increases.
Summary:
Bollinger Bands Width (BBW) is a path-type indicator by calculating the “standard deviation” of the price and then finding the “confidence interval” of the price. This indicator draws three lines on the graph, and the upper and lower lines can be viewed separately Cheng is the pressure line and support line of the price, and the middle is the price average line. The price fluctuation is within the range of the upper limit and the lower limit. When the price rises and falls, the band will widen, and when the price rises and falls are narrow, the band will narrow.
Bollinger Bands Width (BBW) is a fairly useful technical analysis tool that can identify “squeezes” that can generate some nifty buy or sell signals. Of course, traders should always proceed with caution. Sometimes, a breakout after a “squeeze” setup has an immediate pullback, and the bounce never happens. It takes a trader to have a better judgment to really determine if a breakout is a strong, legitimate breakout. That said, when a strong post-squeeze uptrend or downtrend does occur, it presents a good opportunity for the prepared analyst or trader.
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