When to use Bollinger Bandwidth and how it works.
When the bands come close together, constricting the moving average, it is called a squeeze. A squeeze signals a period of low volatility and is considered by traders to be a potential sign of future increased volatility and possible trading opportunities. Conversely, the wider apart the bands move, the more likely the chance of a decrease in volatility and the greater the possibility of exiting a trade.
However, these conditions are not trading signals. The bands give no indication when the change may take place or which direction price could move. Technical analysis incorporates this technical indicator and many others to create actionable trading plans and strategies. If you want to learn how to do this yourself for your own trading future, check out Investopedia Academy's Technical Analysis Course. Any breakout above or below the bands is a major event.
The breakout is not a trading signal. The mistake most people make is believing that that price hitting or exceeding one of the bands is a signal to buy or sell. Breakouts provide no clue as to the direction and extent of future price movement. Industry group and sector data updated daily. Complete access to our fully customizable charts including the full Bollinger Band suite of indicators, plus more than 50 indicators, TrendLines, Systems and Stops.
These interactive technical analysis tools can be created and customized to suit your needs and preferences. Stocks that meet the criteria for each of the four trading methods. Updated on a daily basis for both long and short positions. Read about the four Methods here. An extensive stock-screening program. Customize searches to fit your own criteria. There are two types of tops that you need to know about:. This signal is usually accompanied by an RSI divergence. The screenshot below shows both scenarios.
The first is the top after a divergence. You can see how the trend became weaker and then eventually failed to reach the outer Band before reversing. I marked the second spike with an arrow which was a trend continuation signal as price failed to break higher during the downtrend. The strong spike that was followed by a fast rejection showed that bulls lacked power. If you want to learn how to trade profitably with a step by step trading approach and a powerful trading system, take a look at our premium trading courses.
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