Chapter 8: Bollinger Band Indicators

Table 8.2 BandWidth Formula

(Upper BB - lower BB)/middle BB

%b is a truly relative tool, spinning off no absolute information. It tells only where we are in relation to the framework created by the Bollinger Bands. It allows all sorts of relative comparisons. Take a situation in which you have plotted Bollinger Bands not only on price but also on an indicator and you wish to sell unconfirmed strength. You might write: If %b(price) is greater than 0.9 and %b(indicator) is less than 0.3, sell. But we are getting ahead of ourselves-this is discussed in the system presented in Chapter 20.

The second indicator derived from Bollinger Bands is BandWidth. To calculate BandWidth, subtract the lower band from the upper band and then normalize by dividing by the middle band, as shown in Table 8.2.2 BandWidth can be calculated for any set of bands as long as they are based on a measure of central tendency such as a moving average.

Figure 8.4 Bollinger Bands and BandWidth, The Squeeze, Clorox, 100 days. High volatility begets low volatility and vice versa.

Figure 8.6 Bollinger Bands and BandWidth, end of a trend, Lennar, 200 days. Note that the opposite band turns up at the end of a leg up.

Chapter 8: Bollinger Band Indicators

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Figure 8.7 Steady volatility during a move, (source: "Paralleles" in Analyse Technique Dynamique by Philippe Cahen, Paris, France: Economica Books, 1999.)