Volatility & bandsBollinger Bandwidth · BBW
The width of the Bollinger Bands relative to the middle line — a direct volatility gauge.
Works in most conditionsEngine-computed on a fixed sample series
What it is
Bollinger Bandwidth is a companion indicator to Bollinger Bands that distills the single most useful piece of band information — how wide the bands are — into one clean line plotted beneath price. Where the bands themselves show both position and width at once, Bandwidth isolates width so you can track volatility directly and compare it across time. It answers a focused question: is the market currently more compressed or more expanded than it usually is? Because it strips away price position, it makes the volatility cycle visible in a way the raw bands cannot, turning the visual impression of narrowing or widening into a measurable value. John Bollinger introduced it precisely to quantify the squeeze and to help identify when trends are beginning and ending. It is a pure volatility gauge, not a directional tool.
How it's calculated
Bandwidth is computed by taking the distance between the upper and lower Bollinger Bands and dividing it by the middle band, the moving average. Dividing by the middle line normalizes the width, expressing it as a proportion of price so that readings are comparable over time and across instruments trading at very different price levels. As the bands spread apart in volatile markets, the numerator grows and Bandwidth rises; as they pinch together in quiet markets, the numerator shrinks and Bandwidth falls. Because it is built directly from the standard Bollinger Bands, it inherits their inputs — the twenty-period average and two-standard-deviation bands by default — and updates every bar as those bands recompute. The result is a single oscillating line whose absolute value matters less than where it sits relative to its own recent range.
Reading it step by step
The key to reading Bandwidth is that it is interpreted relative to its own history, not against fixed thresholds. A multi-month low in Bandwidth — the squeeze — marks unusually compressed volatility that historically tends to resolve in a strong directional move, so a Bandwidth low is a heads-up that a big move may be near. A very high Bandwidth reading, sometimes called the bulge, often accompanies a climactic move that soon mean-reverts as volatility exhausts itself. Rising Bandwidth means volatility is expanding, which typically accompanies the meat of a trend, while falling Bandwidth means the market is calming. Bollinger observed that trends often begin as Bandwidth turns up from a low and end as Bandwidth peaks and rolls over. Reading it well is a matter of watching for extremes and turns in the line relative to the instrument's normal range.
Best timeframes and settings
Bandwidth works on any timeframe because volatility cycles appear at every scale, from intraday to weekly. It uses the same defaults as Bollinger Bands, a twenty-period average with two-standard-deviation bands, and there is rarely a strong reason to change them. The one setting that requires judgment is the lookback you use to define a squeeze — the classic definition is a Bandwidth reading at its lowest level in roughly the past six months, though the window can be adapted to the timeframe you trade. A shorter squeeze window flags compressions more often but with less significance, while a longer one flags only the most extreme lulls. Because Bandwidth is relative, the same numeric reading means different things on different instruments, so always judge it against that instrument's own recent history rather than a universal number.
When and where to use it
Use Bandwidth whenever you want to time volatility rather than direction: to spot squeezes before breakouts and to recognize when a climactic move is likely spent. It is most valuable on instruments that cycle between calm consolidation and sharp expansion, letting you prepare during the quiet and act on the release. It is essentially regime-neutral, useful for finding the transition from a range into a trend and for gauging when a trend's volatility has peaked. It is not a tool for deciding which way to trade, so it should never be used alone to enter a position. Avoid reading a Bandwidth extreme as a directional signal; it tells you a move is likely or exhausted, not which way. It is at its best as an early-warning and timing overlay alongside price and a direction tool.
Strategies that use it
The signature strategy is the squeeze play: watch for Bandwidth to fall to a six-month low, then trade the breakout in whichever direction price first closes decisively outside the bands, with the opposite band as the stop. A volatility-exhaustion strategy does the reverse at the other extreme: when Bandwidth spikes to an unusually high reading and then begins to contract, some traders take that as a sign the current move is climaxing and either take profits or fade the exhaustion with confirmation. A trend-timing strategy uses Bandwidth turning up from a low as an early cue that a new trend may be starting and Bandwidth peaking as a cue that the trend's easy phase is ending. In each case, Bandwidth supplies the volatility timing while price action and a direction tool supply the actual entry and side.
Combining it with other indicators
Because Bandwidth is purely a volatility measure, it is designed to be combined with directional tools. Price breaking a clearly defined support or resistance level at the moment Bandwidth is at a squeeze low gives both the timing and the direction the strategy needs. A momentum histogram or oscillator biases which way a compression is likely to resolve, echoing the logic of the TTM Squeeze. Volume expansion on a breakout that coincides with Bandwidth turning up confirms that real participation is fueling the move. Overlaying %B, the other main Bollinger companion, tells you where price sits inside the bands while Bandwidth tells you how wide they are, giving a complete picture of the band environment. A longer moving average frames the trend so you can favor breakouts in its direction.
Where it fails
Bandwidth's central limitation is that it tells you volatility is low or high but never which way the coming move will go, so treating a squeeze low as bullish or bearish on its own is a mistake. A squeeze can resolve in either direction, and false starts — a break one way that reverses — are common, punishing traders who commit before price confirms. The six-month low is a relative threshold, not a fixed number, so mechanically applying a universal value across instruments produces poor results. Bandwidth can also stay low for a long time, so a squeeze reading is not a promise that the move is imminent. And because it is derived from the same bands, it carries their assumptions and lag. The fixes are to always pair it with price confirmation and a direction tool, to judge readings against each instrument's own history, and to accept that some squeezes fizzle.
A worked example
Imagine a currency pair whose Bollinger Bands, with the upper at 1.1050, the lower at 1.0950, and the middle at 1.1000, give a Bandwidth of the width, 0.0100, divided by the middle, 1.1000 — about 0.0091, or 0.91 percent. Over the following weeks the pair goes quiet and Bandwidth falls to 0.40 percent, its lowest reading in six months, flagging a squeeze and telling the trader a significant move is probably building. The trader waits, and when price closes decisively above the upper band as Bandwidth turns sharply higher, that combination of a squeeze release and expanding volatility triggers a long in the breakout direction, with the stop set on the opposite lower band. As the trend runs, Bandwidth climbs; weeks later it spikes to an unusually high reading and begins to contract, and the trader takes that volatility peak as a cue to tighten stops and bank profits, treating the exhaustion of volatility as a sign the easy part of the move is over.