Bollinger Band Width – What It Is & How to Trade with It

Bollinger Band Width – What It Is & How to Trade with It

What is Bollinger Band Width?

The Bollinger Band Width (BBW) is a volatility indicator that measures the distance between the upper and lower Bollinger Bands. It helps traders identify periods of low volatility before a potential breakout and determine market expansion and contraction phases.

The Bollinger Band Width formula is:
BBW = (Upper Bollinger Band – Lower Bollinger Band) / Middle Bollinger Band × 100

Where:

• Upper Bollinger Band = SMA + (Standard Deviation × Multiplier).
• Lower Bollinger Band = SMA – (Standard Deviation × Multiplier).
• Middle Band (SMA) = 20-period Simple Moving Average (default setting).

Key Features of Bollinger Band Width

• Measures market volatility instead of trend direction.
• Helps identify breakout opportunities.
• Works well in combination with trend-following indicators.

How to Use Bollinger Band Width in Forex Trading

1. Low Volatility Breakout Strategy

Periods of low Bollinger Band Width indicate market contraction, often followed by a breakout:

• Buy Signal: When BBW reaches a low level, followed by a strong price breakout above resistance.
• Sell Signal: When BBW reaches a low level, followed by a strong price breakout below support.

2. High Volatility Reversal Strategy

Extremely high BBW values suggest increased volatility, often signaling trend exhaustion:

• Buy when: BBW is at an extreme high, and price shows signs of reversal upward.
• Sell when: BBW is at an extreme high, and price starts reversing downward.

3. Bollinger Band Width with Moving Averages

Pairing BBW with a moving average (e.g., 50 EMA) helps confirm trend strength:

• Buy when: BBW is increasing & price is above the 50 EMA.
• Sell when: BBW is increasing & price is below the 50 EMA.

4. Bollinger Band Squeeze Strategy

The Bollinger Band Squeeze occurs when BBW reaches historically low levels, indicating an upcoming breakout:

• Wait for a price breakout in either direction.
• Enter a trade in the direction of the breakout.

Pros and Cons of Using Bollinger Band Width

✅ Pros:

• Helps identify upcoming volatility expansions.
• Works well in breakout trading strategies.
• Simple to use and interpret.

❌ Cons:

• Does not indicate trend direction.
• Can produce false breakouts without confirmation.

Final Thoughts

The Bollinger Band Width (BBW) is a valuable volatility indicator that helps traders spot contraction and expansion phases in the market. When combined with Bollinger Bands, moving averages, or breakout strategies, BBW improves trade accuracy and risk management.