BoDi: Using Bollinger Band Width to Spot Market Lulls

Summary

BoDi measures the distance between the upper and lower Bollinger Bands and displays that difference as a histogram. The document explains that the bands tend to widen during strong upward or downward price impulses and narrow as the movement loses force. It presents the indicator as a way to observe changing volatility and market activity.

The author cautions that band expansion is a poor signal for identifying an impulse at its beginning because it becomes apparent only after the move is underway. Instead, narrowing may mark a lull in the struggle between buyers and sellers and can help traders look for a possible move’s endpoint. The note gives no formula parameters, trading rules, backtest, or performance evidence; it points readers to a magazine article for those details. The interpretation is therefore qualitative, and a contraction alone does not establish whether price will break out or reverse.

Key ideas

• BoDi plots the difference between the upper and lower Bollinger Bands as a histogram.
• Band width tends to increase during directional price impulses and decrease as those moves fade.
• The indicator is described as too late to identify the start of a move reliably.
• A narrowing channel may signal a lull that traders can examine when estimating where a move could end.
• The document provides no tested entry rules or performance evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.