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:

Trending 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.

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.

Perfect Your Market Timing Learn how to manage your market risk. The weekly Trading Diary offers fundamental analysis of the economy and technical analysis of major market indices, gold, crude oil and forex. More than 100,000 subscribers - Read it now The monthly What's New newsletter covers new articles on Trading and the Economy, as well as new software updates. We do not spam.

Example

Goldman Sachs is displayed with 20-day 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.