Bollinger Band Analysis with BB%, BBW, and Bollinger Bands
In Bollinger Band analysis, it is useful to consider BB%, BBW, and Bollinger Bands together to gain more diverse insights. We covered basic Bollinger Band techniques in a previous post, so today, we’ll focus on the BBW (Band Width) indicator as a secondary tool in Bollinger Band analysis.
1. What is the BBW Indicator?
BBW (Band Width) is a supporting indicator that shows changes in the width of the Bollinger Bands. The band width represents the distance between the upper and lower bands.
BBW Calculation
BBW = (Upper Band - Lower Band) / Middle Band
The primary analysis with the BBW indicator is to identify "Squeeze" and "Bulge" conditions:
- Squeeze: Periods where the band width is at its narrowest over N days, indicating minimal price changes.
- Bulge: Periods where the band width is at its widest over N days, indicating maximum price changes.
Using the BBW Indicator to Analyze Trend Starts and Ends
Squeeze
A squeeze condition suggests low volatility over N days. However, it is completed only when the narrow band begins to widen, signaling a new trend direction.
- Significance of Minimum Band Width: This shows that buying and selling forces were at a stalemate. When the narrow band begins to expand, it signals the end of this equilibrium and the start of a new trend.
- A minimum band width serves as a potential early signal for a new trend, which will be confirmed when the contracted band begins to expand. This expansion indicates that a new trend direction is forming.
Bulge
A bulge condition represents high volatility over N days. It completes when the band width, having reached its maximum, starts to narrow.
- Significance of Maximum Band Width: An expanded band width suggests a strong trend, and a narrowing band signals that this trend may be losing strength.
- When the band width reaches its maximum, it could indicate an upcoming trend reversal. If the band begins to contract, the bulge is complete, signaling the end of the current trend.
If the expanding band starts to contract after a prolonged trend, upward candles may reverse downward, and downward candles may reverse upward.
Summary
- Squeeze: A warning sign of a potential new trend. Watch for band expansion to confirm a new trend direction.
- Bulge: A signal of a potential trend end. Contraction of the band confirms the trend is concluding.
By carefully watching these conditions, investors can anticipate new trends or the conclusion of ongoing trends. Remember, it is essential to pay attention to band expansion before entering buy or sell positions to avoid “head fakes” or false signals.
for beginners of technical analysis] how to analysis the moving average?
As a stock price rises, it often pauses due to various factors, including profit-taking from prior gains. During this process, the stock price undergoes a correction and approaches its Moving Averages (MA). In the short term, it may approach the 5-day MA,
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