This indicator attempts to show us moments when the stock price might diverge or converge back to the moving average of the stock which is observed in movements from the black line to the red line as I’ve circled above.
The last indicator is the Bollinger band width line which really is just a supplement to the Bollinger bands that you saw in red from above. When the line gets low it indicates that the Bollinger bands have become very tight relative to where the stock usually trades. When a stock is trading in a tight range, we tend to see a volatile squeeze from that range at some point or another.
What Does This All Mean?
Before going any further I think it is important to touch on the philosophy behind some of the tools we are looking at and what technical analysis attempts to do in the first place. As a newcomer first attempting to use charts I can remember finding it challenging to try and even make out what it was that I was looking at on the chart, much less be able to place any kind of human meaning behind it. Thus, I don’t see the point in showing you some of the tools we have available without first understanding why we use them and what we claim to be able to use them to do. I will be brief.
84