Bollinger Bands Width
period = 20 (10–50) • std_dev = 2 (1–3) Overview
Bollinger BandWidth (BBW) is a technical analysis indicator derived from standard Bollinger Bands that measures the percentage difference between the upper and lower bands. Calculated as (Upper Band - Lower Band) / Middle Band × 100, it outputs a normalized view of volatility that helps traders identify squeeze patterns and potential breakout opportunities.
The indicator tracks the market's tendency to alternate between periods of consolidation and trend. During consolidation, the BBW contracts (squeeze), while it expands during significant price moves. This volatility cycle - where extended periods of very low volatility are followed by sudden surges - forms the foundation of breakout trading strategies in 2025.
Interpretation & Trading Signals
The Squeeze Pattern:
- Identification: BBW approaches zero and stays flat - tight consolidation
- Premise: Stocks constantly alternate between high and low volatility periods
- Breakout Signal: Subsequent band break after squeeze signals new move direction
- Explosive Moves: Narrower width = more explosive subsequent price movement
Trading Strategies (2025):
- Squeeze Breakout: When bands contract tightly, expect significant breakout movement
- Volatility Breakout: Low BBW indicates potential breakout as bands narrow
- Mean Reversion: High BBW signals volatile market - buy lower band, sell upper band
- Head Fake Warning: Beware false breakouts that quickly reverse direction
Key Considerations:
- Non-Directional: BBW only shows volatility strength, not trend direction
- Complementary Indicators: Use with volume indicators (ADL, CMF, MFI, OBV) for direction
- Cycle Understanding: Price alternates between consolidation and trending phases
- Risk Management: Always combine with other technical analysis aspects
Example Usage
Code examples will be available once the Rust implementation is complete.