Detecting Range Conditions with Bollinger Bandwidth Contraction

Summary

The indicator uses Bollinger Band widths calculated over two lookback lengths to flag a possible range or contraction regime. It computes the distance between the upper and lower bands for the longer window and for the shorter window. When the shorter-window width falls below half the longer-window width, the output is set to a no-trade state; otherwise, the indicator returns the alternate state. The suggested interpretation is that relatively compressed short-term bands mark a ranging market.

This is a simple binary filter rather than a directional signal or a complete trading system. The document gives no market, bar interval, parameter testing, or performance evidence, and it does not explain how trades resume after a no-trade state. Bollinger widths can vary with volatility and the chosen settings, so the threshold may behave differently across instruments and regimes. The rule needs empirical testing and explicit handling of entries, exits, and costs before it can support a trading decision.

Key ideas

• The rule compares Bollinger Band widths from two lookback windows.
• It flags a no-trade condition when the shorter-window width is less than half the longer-window width.
• The output identifies a possible contraction or range regime without forecasting direction.
• The document provides no backtest or guidance on entries, exits, or trading costs.

Tags

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