Bollinger Percent

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Bollinger Percent (%), like Bollinger Bandwidth, is based on the Bollinger Bands indicator, which was developed by John Bollinger. The Bollinger Bands indicator was developed to measure a stock's volatility. Furthermore, both Bollinger Bandwidth and Bollinger Percent are used in technical analysis for the same purpose of volatility evaluation. However, the results of the analysis of these technical indicators are represented in different formats: Bollinger Bands allows you to visually evaluate volatility, whereas Bollinger Bandwidth represents volatility as a numeric value obtained by subtracting the lower band from the upper band, and the Bollinger Percent locates the current close price in relation to the bands by applying the Stochastics formula:

Percent B = ((Close - Bollinger Lower Band) / (Bollinger Upper Band - Bollinger Lower Band))*100

The difference between Bollinger Percent and Stochastics is that while Stochastics oscillates in a range between 0% and 100%, the Bollinger Percent may fall below 0% when the price breaks the lower band and drops below it or may rise above 100% when the price crosses the upper band and moves above it.

As mentioned above, Bollinger Percent calculates the current price location relative to the upper and lower Bands. As an example

• A Bollinger Percent reading of 50% means that the current price is exactly at the middle band;
• When the Bollinger Percent hits 100%, it means that the price is at the upper band level;
•  When the Bollinger Percent drops to 0%, it tells us that the current price has dropped to the lower band level;
•  Readings above 100% reveal that the price is moving above the upper band;
•  Readings below 0% show that the current price has dropped below the lower band.

Overall, as mentioned above, Bollinger Bands are used to evaluate a stock's volatility. However, when it comes to development of a trading system, a system developer would realize very quickly that while this indicator is easy for visual analysis, it becomes quite complex, when it comes to mechanical implementation, to apply technical analysis to Bollinger Bands. That is when Bollinger Bandwidth and Bollinger Percent can become very handy. These two indicators are ideal to use in a trading system to evaluate a level volatility (a width between the upper and lower bands) and to define price location in relation to the bands.

Chart 1: S&P 500 Index (^SPX) chart - Bollinger Percent

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