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    Bollinger Bandwidth

    Definition

    The Bollinger Bandwidth indicator quantifies the width between the upper and lower Bollinger Bands. It serves as a measure of volatility in the market. A wider bandwidth indicates higher volatility, while a narrower bandwidth suggests lower volatility. The Bollinger Bandwidth is particularly useful in identifying periods of market consolidation and impending trends.

    Suggested Trading Use

    Bollinger Bandwidth can be used in various ways:

  • Identifying Market Volatility: A rising Bandwidth value typically indicates increasing market volatility, while a falling Bandwidth suggests declining volatility.
  • Anticipating Breakouts: A narrow Bandwidth often signifies market consolidation and can be a precursor to a big price move or trend. Traders often consider a narrow Bandwidth as a setup for an impending breakout.
  • Confirming Trends: A widening Bandwidth during an uptrend may confirm the strength of the trend, while a narrowing Bandwidth during a downtrend could signify a weakening in the trend.
  • Comparing Peaks and Troughs: By examining previous peaks and troughs in the Bandwidth, traders can potentially anticipate future volatility levels and market conditions.