Bollinger Band Width

Bollinger Band Width, written BandWidth by John Bollinger, converts the band distance into a fraction of the middle average so that a 1,000-rupee stock and a 100-rupee stock can be compared, and so that a slow drift in price does not look like a volatility change. Low BandWidth is the squeeze. The lowest BandWidth in a long lookback is the context Bollinger highlighted before a move. The indicator does not pick the direction of that move.

Plot BandWidth under the bands. A trough says the recent dispersion, scaled by price, is unusually tight. The trade is not "buy the trough." The trade, in the trend-following use, is to wait for the price to leave the squeeze and to go with that leave. In a mean-reversion use, a very high BandWidth says the window is dominated by a shock, and fading it is a different system with a different loss pattern.

Use BandWidth to rank squeezes without staring at the price scale. A six-month low in BandWidth is a more serious compression than a two-day low. After the break, a rising BandWidth confirms the bands are opening, which means the move is not a one-close fake relative to the recent dispersion. Still confirm with the close and the level.

Buying because BandWidth is low. Low can last, and the eventual break can be down. Also comparing the raw band distance in points across a stock split. Use the normalised form so the split does not look like a volatility event.

BandWidth inherits every limit of standard deviation. It widens after the shock is already in the window. It will not flag a gap that has not printed. And a low reading in a market that is simply dead, with no catalyst, can stay low longer than a position can stay interesting.