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Bollinger Band MetaTrader 4 Indicator & Bollinger Bands Signals

Developed by John Bollinger.

This indicator serves 3 primary functions:

  • Provide a relative definition of high and low
  • Show periods of high and low volatility
  • Identify periods when the prices are at extreme levels

Bollinger Band do this by using standard deviations as a measure of volatility. Since standard deviations trading indicator is a measure of volatility, the bands are self-adjusting: they widen during periods of higher volatility & contract during periods of lower volatility.

This indicator consist of 3 bands designed to encompass the majority of a instrument's price action. The middle band is a basis for the intermediate term trend, typically a 20-periods simple MA, which 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 volatility. Typically, the upper band is plotted +2 standard deviations above middle +boollinger band while the lower +boollinger band is plotted -2 standard deviations below middle +boollinger band.

Interpretation

Bollingers are usually calculated using the instrument's prices & they have the following characteristics.

  • Sharp price changes tend to occur after the bands tighten as volatility lessens, this is referred to as Bollinger band squeeze.

  • When prices move outside the bands a continuation of the current trend is implied.

  • Bottoms & tops made outside the bands followed by bottoms and tops made inside the Bollinger Band respectively, call for reversals in the market trend.

  • A move which originates at one band tends to go all the way to the other band.

Bollinger Bands Indicator - Bollinger Bands Technical Indicator - Trend Identification Analysis

FX Trend Identification

This MetaTrader 4 Indicator is used as a trend following indicator since it shows the general direction of the trend.

If the trend is upwards middle & the lower bollinger provide excellent points for opening a buy trade, these levels act as support levels.

In a down trend the middle & the upper bollinger provide excellent points for opening a sell trade position. These levels are used as resistance zones.

The outer levels are also commonly used to set stop loss levels above or below these outer levels bands.

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