Bollinger BandWidth – A Simple But Effective Tool for Predicting Breakouts and Sell-Offs
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There are dozens and dozens of technical indicators and chart formations that predict whether a stock is due to go up or down… What there aren’t a lot of is indicators that accurately predict WHEN a stock is about to make a major move. This is what Bollinger BandWidth is good for — not determining which WAY a stock is likely to go, but IF it is about to make a major move.
We looked at Bollinger Bands way back in Episode 20 of TradingTips.com, and if you’re unfamiliar with them, I encourage you to go back and watch that video. We do offer a brief refresher in this video, but the focus of the episode is on Bollinger BandWidth, and even if you use Bollinger Bands on a daily basis, it pays to understand BandWidth, too.
In this episode, you’ll learn:
- What Bollinger Bands are and what they measure — this is essential for understanding Bollinger BandWidth.
- What it means when Bollinger Bands are far apart and what it means when they’re close together — and how far apart or close together they need to be in order for the width to be significant.
- How to “eyeball” a chart and determine if its Bollinger BandWidth is significant. You can either do the complex math or learn the skill of reading a chart, which is a lot easier than you might think.
- How to add a special Bollinger BandWidth line to your charts for those special instances when “eyeballing” either can’t work or isn’t good enough.
We also take a look at a chart with tightening and loosening Bollinger bands to illustrate how Bollinger BandWidth predicts a major price swing — but not a swing in any particular direction.
John Bollinger invented Bollinger Bands and, of course, Bollinger BandWidth, and to him, BandWidth was always the key. Yes, Bollinger Bands can be used to see when a stock is likely to encounter support and/or resistance, and they can tell you when a stock has already broken out — but BandWidth PREDICTS the breakout before it happens. Which would you find more useful?
Happy Trading!
Manny Backus
CEO, Wealthpire Inc.
P.S. John Bollinger also invented another Bollinger Band-related indicator: Bollinger Band %B. We’ll look at that one in our next episode!
Episode 74 –Bollinger BandWidth – A Simple But Effective Tool for Predicting Breakouts and Sell-Offs
