InvestorQ : What exactly is the Percent B (%B) indicator in technical analysis and how is it useful?
Katherine Gonsalves made post

What exactly is the Percent B (%B) indicator in technical analysis and how is it useful?

Answer
user profile image
Rutuja Nigam answered.
1 year ago


Percent B (%B) indicator is a kind of a Momentum Oscillator that is normally used with reference to Bollinger Bands. In short, the Percent B indicator reflects closing price as a percentage of the lower and upper Bollinger Bands. Let us quickly recapitulate what the Bollinger Band is in the first place.

Bollinger Bands are a type of price envelope or a value overlay, as they are popularly referred to, and were developed by John Bollinger. What exactly are price envelopes? The price envelopes define upper and lower price range levels.) Bollinger Bands are envelopes plotted at a standard deviation level above and below a simple moving average of the price. The beauty of the Bollinger Bands is that they automatically factor in for the risk of volatility in markets due to the consideration of standard deviation (the root of variance) into the calculation. Since the distance of the bands is based on standard deviation, they automatically adjust to volatility swings in the underlying price.

Bollinger Bands would typically use 2 parameters viz. time period and standard deviations. The default values are 20 for time period and 2 for standard deviations, although you may customize the combinations based on your unique and specific needs. These Bollinger bands help us to determine whether prices are high or low on a relative basis. They are used in pairs, both upper and lower bands and in conjunction with a moving average. Please note that the pair of bands is not intended to be used on its own. Use the pair to confirm signals given with other indicators. That means Bollinger Bands are not stand alone indicators in their own right. They are useful as supplementary tools to confirm, ratify or reinforce your view on the stock or the markets.

Since the Percentage B reflects price as a percentage of the Bollinger Bands, an understanding of the bands is very important.