BOLLINGER BANDWIDTH - HOW IT WORKS

For Bollinger, when the two bands spread apart signaling a new trend to form or about to have a price correction when the tightening band signals an accumulation in preparation for a boom. price. The same is true of the Bollinger bandwidth when the indicator drops to a low, which is a sign that the price is accumulating, preparing for a breakout.

See the illustration below:


In zone A, the indicator dropped to a low and was followed by a breakout upward. Similar in zone B and C are two price breakouts downwards after the indicator dropped to the low. This example shows the Bollinger bandwidth reflecting the price movement for Traders quite intuitively.

According to Bollinger, when this indicator drops to 2%, it usually comes with a strong price drop. However, he warns that these situations often begin with a false break to trap "novice" traders before a real breakout occurs.

BOLINGER BANDWIDTH - CALCULATION METHOD

It's very simple, it's just the difference between the two outer band lines divided by the value of the mid-band line.

The final part is how to use the Bollinger bandwidth.

BOLLINGER BANDWIDTH - TRADING METHOD

The most common way to trade with an indicator of volatility is the breakout. The Bollinger bandwidth indicator is a measure of volatility, but it's not only used to show potential breakout zones, but it's also used to measure trend strength.

When acting as an indicator of trend strength, Bollinger bandwidth can signal when a trend is likely to end, but the difficult point that needs to be differentiated by the Trader is the signal that it gives the signal. the end of the trend or merely a slight price correction!


The figure above illustrates how the Bollinger bandwidth works in a trend. Usually, these Bollinger duos are used together to complement each other.
You should note that the Bollinger bandwidth does not indicate when the Bollinger bands expand or contract, but its function is to show the extreme points of volatility.

One note when using this indicator is that Traders must be alert to distinguish the low peaks that it generates corresponding to the price. Let's see an example.


In zone D, the indicator makes a clear top when the price bottomed, similarly for zone E it drops to the bottom when the price tops. Maybe you never used this indicator will ever be a little confused, take a little effort to ponder it, maybe this is what you are looking for.
In short, when the Bollinger bandwidth drops to a low level, this is a signal to consider entering, because it simply signals a new price movement.

There is not a universal indicator, so it would be a mistake if the Traders only use this indicator for trading, need to combine more with the resistance-support line to be able to determine the exact entry point. order as well as the next price direction. Another suggestion is to use the moving average of 50 or 200 with this indicator.

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