✔️ Information reviewed and updated in May 2024 by Eduardo López
There are different volatility indicators such as Bollinger% B that allow us to know the size and magnitude of the different price fluctuations, this allows us to better understand the level and type of activity that occurs in the market.
One of the most popular indicators for measuring volatility is Bollinger Bands. Through their bands, which were created based on two types of deviations, they are in charge of carrying out an in-depth analysis of the decrease and increase in volatility. Here you can find a better explanation so you don't get confused when you want to go deeper into the subject.
➡What is the Bollinger% B indicator?
Bollinger Bands% B or also known as bandwidth percentage (% B) is an important indicator derived from the standard Bollinger Bands indicator. Which represent a very effective and common technical analysis indicator, normally used by traders to better understand price volatility.
A trader is actually a trader who acquires profitability by buying and selling assets in the different financial and stock markets. The name of this indicator comes from its creator, John Bollinger, who was a well-known technical analyst in the 80s.
➡What is this indicator for?
The middle line of the bands is usually a 20-day simple moving average, the upper and lower bands are normally two standard deviations that are above and below the Simple Moving Avarage (SMA). The main function of the% B indicator is to quantify or show where the price is in relation to these bands, this is useful to identify trends and trade signals.
And as we already mentioned before, the technical analysis that it performs helps to obtain more information about the strength and direction of prices, in this way new strategies can be developed.
➡How is it calculated?
The general formula to calculate this important indicator is:% B = (Current Price - Lower Band) / (Upper Band - Lower Band). This relationship between the price and the upper and lower bands can be summarized in six basic quantifiable relationships:
- % B above 1 means that the price is above the upper band.
- % B equal to 1 means that the price is in the upper band.
- % B above .50 means that the price is above the midline.
- % B below .50 means that the price is below the midline.
- % B equal to 0 means that the price is in the lower band.
- & B below 0 means that the price is below the lower band.
➡Why should you use Bollinger% B?
The% B indicator goes beyond a simple visual analysis of the price in relation to its location within the well-known Bollinger Bands. Its peculiar way of determining the location endows technical analysis with an extraordinarily accurate value.
