John Bollinger initially developed the Bollinger BandWidth indicator in the early 1980s. The idea behind this indicator is to measure volatility or fluctuations in the price of an asset relative to its recent trading history. This concept can be applied to any financial instrument but is most commonly used on stock charts.
The purpose of this blog post is twofold: firstly, it will detail how the Bollinger BandWidth works, and secondly, it will give a step-by-step guide on how you can code it using TradeStation or MultiCharts.
The Bollinger Bands are already present on every platform. Still, using the Bollinger Bands Bandwidth Indicator, the bands will be displayed only when the volatility decreases (during periods of “congestion” or during a range-bound market).
I sometimes use this filter in mean-reverting strategies to avoid signals when volatility is low. This simple correction generally improves breakout strategies.
What is the Bollinger Bands Bandwidth
The Bollinger Bandwidth was first described in John Bollinger’s book, “Bollinger on Bollinger Bands.” Bollinger BandWidth is a Bollinger Band-derived indicator. In his book, John Bollinger describes the calculation of Bollinger BandWidth as one of two indicators that may be derived from Bollinger Bands (the second being %B).
This indicator compares the difference between the upper and lower Bollinger Bands. The indicator is usually plotted as an oscillator beneath the price chart by most charting platforms.
The Bollinger BandWidth difference between the upper and lower Bollinger Bands, divided by the middle band. This technical indicator is a simple method to visualize consolidation before price changes (low bandwidth values) or periods of heightened volatility (high bandwidth values).
The Bollinger BandWidth works with the same two variables as the Bollinger Bands: a simple moving-average period (for the middle band) and the number of standard deviations the upper and lower bands should be offset from the middle band.
The Bollinger Bandwidth indicator is helpful for technical traders because it allows them to anticipate both price swings and potential reversals in the foreign exchange market.
How to use Bollinger Bands
The Bollinger Band Width uses the same two parameters as the Bollinger bands. The first one is how many days to use for the middle band, and the second one is how many standard deviations to use for each band.
A bandwidth indicator is a technical tool that aids in predicting fluctuations before they occur (low bandwidth values) or periods of greater volatility (high bandwidth values).
The BandWidth indicator is used to identify the Bollinger Band Squeeze. Traders are warned that a change is on the way, but the subsequent band break determines the direction. The bandwidth indicator alerts the Bollinger Band Squeeze, but not in what direction because the next band break will determine where we go.
The Bollinger bands squeeze signal appears as an elastic green line on charts with “BANDWIDTH” printed below, and it’s easy to spot even if they’re moving quickly or sitting there looking thoughtful. That’s why this is so popular among scalpers who trade equities successfully by squeezing.
The squeezes are very straightforward. A bearish squeeze will be an immediate selloff once the price breaks below a certain level, while bullish ones happen when buyers step in after losses and push prices back up towards their original levels or higher.
Squeeze analysis can help you make sense of what may otherwise seem like chaos by identifying significant market turning points based on chart patterns such as breakouts (breakout), follow-throughs (squeeze), and retracements.
Download or write a Bollinger BandWidth indicator.
You may learn how to use the Bollinger bands bandwidth for metatrader4 and download the indicator by watching this video.
If you must code the bandwidth for Tradestation or Multicharts, this is a simple procedure to follow.
Firstly, we will use the Bollinger Bandwidth function, which measures the BandWidth and thus the volatility of a given financial instrument.
We begin to draw the Bollinger Bands with simple code, slightly different from what you find on the platform:
Then we create a slow and fast bandwidth, as well as a moving average, using the following syntax:
The distance between the bands will be the result. However, we only need the space, so we’ll have to compare a quick Bandwidth with a slower one. In this example, we use a 50-period moving average.
When volatility rises, the Bandwidth stays above its moving average. In addition, we add the fast Bandwidth to the slow one so that you may utilize four distinct types of volatility:
The indicator will draw congestions like this:
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How to “draw” Transparent Bollinger Bands
We used the Argb function to display the Bollinger Bands BandWidth only during periods of declining volatility because this was more useful. With this function, we can assign colors in Easylanguage to TradeStation and have a great deal more variety than the few pre-defined hues.
The code looks like this:
In short, replace the first and the last value with a 0, and the color becomes transparent.
Bollinger Bands BandWidth Indicator Download
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