Bollinger Bands - Fibonacci Ratios Analysis & Signals
Derived from the original and initial Bollinger bands.
The Bollinger Fib ratios is a volatility based trading indicators but it doesn't use the standard deviation method to calculate width of the channels instead it uses a smoothed ATR that is multiplied with Fibonacci ratios of 1.618, 2.618, & 4.236.
The smoothed lines that are multiplied with Fib ratios are then added or subtracted from the MA.
This forms Three upper Fibo bands & Three lower Fibo bands
Middle band forms the basis of the price trend.
Technical Analysis & Generating Signals
This indicator used to determine point of support & resistance for a currency pair.
Lines below represent support levels while those above are resistance zones.
The outer-most bands provide the strongest resistance/support.
The inner most bands provide least support/resistance.
The innermost band represents Fib 38.2 % retracement level
The second band represents Fib 50 percent% retracement level
The outermost band represents Fibo 61.80 % retracement level
The Indicator is used to figure out points where price may reverse. (Price Pull-back Levels)
When price hits one of the lines and reverses then an entry or exit trading signal gets generated.
However, it is always good to combine the signal with other confirmation indicators such as and like the Moving Average to confirm the signal just as shown below.
Technical Analysis in FX Trading
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