CompanyGraph
Measures the spread between upper and lower Bollinger Bands relative to the midpoint, exposing whether the stock is in a volatility compression or expansion phase.
Bollinger bandwidth measures how wide the bands are relative to the middle line. Wider bands mean higher 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.
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