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Bollinger Bands Indicator Bulge and Squeeze Technical Analysis

The Bollinger Bands are self adjusting which means the bands widen and narrow depending on volatility.

 

Standard Deviation is the statistical measure of the volatility used to calculate the widening or narrowing of the  bands. Standard deviation will be higher when prices are changing significantly and lower when markets are calmer.

  • When volatility is high the Bands widen.
  • When volatility is low the Bands narrows.

 

The Bollinger Squeeze

Narrowing of Bands is a sign of consolidation and is known as the Bollinger band squeeze.

 

When the Bollinger Bands display narrow standard deviation it is usually a time of consolidation, and it is a signal that there will be a price breakout and it shows people are adjusting their positions for a new move. Also, the longer the prices stay within the narrow bands the greater the chance of a breakout.

Bollinger Bands Squeeze

Bollinger Squeeze


The Bollinger Bulge

The widening of Bands is a sign of a breakout and is known as the Bulge.

 

Bollinger Bands that are far apart can serve as a signal that a trend reversal is approaching. In the example below, the bands get very wide as a result of high volatility on the down swing. The trend reverses as prices reach an extreme level according to statistics and the theory of normal distribution. The "bulge" predicts the change to downtrend.

Bollinger Bands Bulge

Bollinger  Bulge

Market Sentiment: Did you know that traders and market participants have been buying US Dollars because USD is the best currency to hold when there is a recession – this is because the dollar is held as the reserve currency by most central banks and during recession most traders also prefer to hold this currency, this is why USD is known as a safe haven currency. But now the market sentiment has changed and all the economies are on their way to recovery and most have even returned to economic growth based on the economic reports coming from these countries.

During times of economic growth traders prefer to sell the dollars they had bought and start buying higher yielding currencies. These higher yielding currencies include EURO and Great Britain Pound. This is why the Euro is starting to appreciate against the USD. The EURUSD is trending upwards; Crude Oil Prices have also started to move back up because demand of oil is growing because of the global economic growth, Gold is also in an upward trend because during economic growth the prices of commodities also go up because there is increase in their demand.

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