Bollinger Bands Price Action in Ranging Forex Markets
Bollinger Bands Indicator is also used to identify periods when a currency trend is overextended. The guidelines below are considered when applying this indicator to a sideways trend.
It is very important because it is used to give indications that a break out may be upcoming. During a trending market these techniques do not hold, this only holds as long as Bollinger Bands are pointing sideways.
- If the market touches the upper band it can be considered overextended on the upside - overbought.
- If the market touches the lower band the currency can be considered overextended on the bottom side - oversold.
One of the uses of Bollinger Bands is to use the above overbought and oversold guidelines to establish buy and sell targets during a ranging market.
- If price has bounced off the lower band and crossed the center-line moving average then the upper band can be used a sell level.
- If price bounces down off the upper band and crosses below the center moving average the lower band can be used as a buy level.
Bollinger Bands Ranging Markets
In the above ranging market the instances when the price hits the upper or lower bands can be used as profit targets for long/short positions.
Trades can be opened when the market hits the upper resistance level or lower support level. A stop loss should be placed a few pips above or below depending on the trade opened, just in case the price action breaks out of the range.