How Do I Set Bollinger Band Technical Indicator on Chart?

Bollinger Band Analysis and Bollinger Bands Signals

Developed by John Bollinger

Bollinger Bands are formed by 3 lines. The middle line is a MA(Moving Average) - 20 period Simple MA.

The bands are then plotted at a distance away from the MA These are the bands which form the lower and upper lines.

The distance where the bands are plotted is determined by another technical indicator called the standard deviation. Standard deviation is a gauge and measure of volatility in the forex market or that of a currency pair.

Since the market price volatility keeps on changing, the standard deviations will keep oscillating, and since Bollinger bands are plotted using the standard deviation method/calculation the distance calculation of the bands will keep on self adjusting themselves to volatility conditions.

When the market becomes more volatile, the bands widen and they contract during less volatile periods.

The 3 Bands are designed and intended to encompass/enclose majority of the currency price action. The middle band forms the basis for the market trend, generally a 20-periods simple Moving Average.

This band also serves as the base for the upper and lower bands. The upper band's and lower band's distance from the middle band is determined by price volatility. The upper bollinger band is drawn at +2 standard deviations above the middle band while the lower band is drawn at -2 standard deviations below the middle band.

Learn Bollinger Band Analysis - Place Bollinger Band on a Chart

Forex Technical Analysis and How to Generate Trading Signals

Bands provide a relative definition of high & low

Used to identify periods of high & low volatility

Used to identify periods when prices are at extreme levels

Consolidation - the Squeeze

The bands tighten as price volatility reduces, this identifies periods of consolidation. Sharp price break-outs tend to happen after the bands tighten.

Forex Consolidation

Consolidation Pattern

Continuation Forex Signal - the Bulge

If prices break through the upper or lower band & move outside the bands a continuation of the current trend is expected.

Bollinger Band Analysis - How to Add Bollinger Band on Forex Chart

Reversal Signals - Double Top and Double Bottom Patterns

Bottoms and tops made outside the bands followed by bottoms & tops made inside the bands call for reversals in the market trend

How Can I Place Bollinger Band on Forex Chart on Forex Platform?

The Head Fake - Forex Whipsaw

Forex traders should be on the lookout for false breakouts known as whipsaws or head fakes.

Price oftenly breaks-out in one direction immediately following the Squeeze causing many traders to think the break-out will continue in that particular direction, only to quickly reverse and make the true, more significant break-out in the opposite direction.

Traders reacting quickly on the initial break-out commonly get caught up on wrong side of the price action, while those traders expecting a "false breakout" can quickly close out their original position and enter a trade in the direction of reversal. It is always good to combine Bollinger bands with other confirmation Technical Indicators.

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