What Is Bollinger Bandwidth?
Bollinger Bandwidth measures the percentage distance between the upper and lower Bollinger Bands: Bandwidth = (Upper Band - Lower Band) / Middle Band × 100. Low bandwidth indicates compressed volatility (the bands are tight); high bandwidth indicates expanded volatility (the bands are wide). It quantifies what the Bollinger Squeeze shows visually.
How Bollinger Bandwidth Works
Bandwidth follows a cyclical pattern: contraction, expansion, contraction. Periods of extreme low bandwidth (historically low percentile) almost always precede significant breakout moves. The direction of the breakout isn't predicted, but the magnitude tends to be proportional to the degree of compression — the tighter the squeeze, the more powerful the expansion.
Why It Matters for Traders
Bandwidth is the simplest and most effective volatility cycle indicator. When bandwidth reaches its lowest reading in 6+ months, prepare for a major move. Combine bandwidth readings with directional indicators (RSI, MACD) to anticipate which direction the breakout will take. The bandwidth reaching extreme lows is the "when" signal; other indicators provide the "which direction" context.
