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Bollinger %b Indicator - and Band Width Indicator

Bollinger %b is described by John Bollinger on his website. It indicates the position of Closing Price relative to Bollinger Bands® plotted at 2 standard deviations around a 20-Day simple moving average. Bollinger also describes a separate Band Width Indicator that reflects the width of the Bollinger Bands.

Bollinger %b Trading Signals

Bollinger describes the following signals which can be used in a trending or ranging market:

  • Go long if a retracement records a negative number on %b (i.e. price has closed below the lower Bollinger Band) and is followed by a second retracement where %b remains positive.

  • Go short if a rally records a value above 100 for %b (the upper Bollinger Band) and is followed by a second rally where %b remains below 100.

Use failure swings on Welles Wilder's Relative Strength Index to confirm the signals.

Example

Goldman Sachs is displayed with 20-day Bollinger %b.

Goldman Sachs with Bollinger %b

Mouse over chart captions to display trading signals.

  1. Go long [L] when a retracement on Bollinger %b respects the zero line after the previous retracement was below zero.
  2. Exit [X] when a rally on Bollinger %b falls short of 100 after the previous rally exceeded 100.
  3. Go long [L] when the retracement on Bollinger %b reverses while above zero after the previous retracement reached zero.
  4. Exit [X] after another bearish divergence on Bollinger %b, from above to below 100.

Bollinger Band Width Indicator

Bollinger's Bandwith Indicator is used to warn of changes in volatility. As we know from using Bollinger Bands, a squeeze where the bands converge into a narrow neck often precedes a rapid rise in volatility. A Bollinger Band squeeze is highlighted by a fall in the Band Width indicator to below 2.0%. Bollinger claims that a drop below 2% on the S&P 500 has led to many spectacular moves, but warns that the market often starts with a fake move, in the wrong direction, before the real move commences.

Example

Goldman Sachs is displayed with 20-day Bollinger Band Width.

Goldman Sachs with Bollinger Band Width

Mouse over chart captions to display trading signals.

  1. Go long [L] when Bollinger Band Width starts to rise after contracting to a historic low.

Bollinger requires contractions below 2.0%, but wider contractions provide perfectly adequate signals.

Bollinger %b Setup

The default setting for Bollinger %b and Band Width is a 20-Day simple moving average with bands drawn at 2 standard deviations.

See Indicator Panel for directions on how to set up an indicator — and Edit Indicator Settings to change the settings.

Bollinger %b Formula

The forumula for Bollinger %b is (Closing Price - Lower Band) / (Upper Band - Lower Band).

The formula for Bollinger Band Width is (Upper Band - Lower Band) / Simple Moving Average for the same period.



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