Bollinger BandWidth
BBW · module 25 of 33 · volatility
The width of the Bollinger Bands relative to the middle band — a normalised volatility reading.
- Upper band
- Lower band
- Bandwidth
Low bandwidth = a squeeze. Squeezes do not tell direction, but they often precede expansion.
How to apply it
- 1. Add it. Start with 20, 2.0 on 15m; watch multi-day lows (Intraday).
- 2. Read the market first. Expanding BBW confirms that a directional move is accompanied by real volatility expansion.
- 3. Adjust for ranges. BBW at a multi-week low marks compression — a breakout becomes more likely, with no indication of direction.
- 4. Manage the trade. Place the stop at 1.5 × ATR and the target at 3.5 × ATR, and only act when the chart above shows the trigger.
How it is calculated
BBW = (Upper − Lower) ÷ Middle, often expressed as a percentage.
Inputs
- · Period (20)
- · Deviations (2.0)
Reading it correctly
In a trend
Expanding BBW confirms that a directional move is accompanied by real volatility expansion.
In a range
BBW at a multi-week low marks compression — a breakout becomes more likely, with no indication of direction.
Settings by style
| Style | Suggested values |
|---|---|
| Intraday | 20, 2.0 on 15m; watch multi-day lows |
| Swing | 20, 2.0 on 4h |
These are conventional starting points, not optimised values. Test any change on your own pair and timeframe before relying on it.
Worked example
Upper 1.0910, lower 1.0850, middle 1.0880: BBW = 0.0060/1.0880 = 0.55%. If the 100-candle range of BBW is 0.4% to 1.8%, the current reading is near the compressed end.
When it failed
A trader treated record-low BBW on EUR/CHF as a long signal. The eventual breakout went the other way. Compression indicates that a move is coming, never which way.
Limitations
- Completely directionless.
- Compression can persist far longer than expected.
- Thresholds must be set per pair and timeframe from its own history.
Works well alongside
- · Donchian Channels
- · ADX / DMI
- · ATR
Redundant with
- · ATR
- · Standard deviation
- · Chaikin Volatility
Stacking these produces agreement by construction, which is not confirmation.
Practice exercise
Identify the 10 lowest BBW readings on 4h GBP/USD over a year and measure the size and direction of the move in the following 20 candles.
Check your understanding
1. Low BandWidth indicates:
- · An imminent uptrend
- ✓ Compression, with no directional information
- · Overbought conditions
- · High volume
Narrow bands mean low recent dispersion. The resolution direction is unknown.
2. BandWidth is normalised by the middle band so that:
- · It becomes bounded 0–100
- ✓ Readings are comparable across pairs and price levels
- · It predicts direction
- · Lag is removed
Dividing by the moving average converts an absolute width into a relative one.