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Bollinger Bands Strategies

Bollinger Bands Indicator Strategy

Bollinger Bands indicator acts as an estimate of volatility. Bollinger Band is a price overlay trading indicator.

Bollinger Band consists of 3 lines or bands: mid band (moving average), an upper band a lower band. These 3 bands will enclose the price & the price action will move within the three bollinger bands.

Bollinger Band forms upper & lower bands around a moving average MA. Default MA for bollinger bands indicator is the 20-SMA. Bollinger Band use the concept and formula of standard deviation to form their upper & lower Bands.

The example of Bollinger Band is shown below.

How Do I Trade with Bollinger Bands Strategy?

Bollinger Band - How to Trade with Bollinger Bands Strategy

Because standard deviation is a measure of price volatility and volatility of the market is dynamic, the bollinger bands keep self adjusting their width. Higher price volatility means higher standard deviation and the more the bands widen. Low price volatility means the standard deviation is lower & the bollinger bands contract.

Bollinger Bands fore indicator use price action to give a large amount of price action movement information data. The price info given by the bollinger bands trading indicator includes:

  • Periods of low volatility - consolidation phase of the market.
  • Periods of high volatility - extended trends, trending markets.
  • Support & resistance zones of the market price.
  • Buy & Sell points of the price.

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