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Bollinger Bands in Forex – Explanation

Discussion in 'Forex Discussions' started by painofhell, Mar 8, 2016.

  1. painofhell

    painofhell Content Contributor

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    What are Bollinger Bands?

    Bollinger bands are an indicator which is used to measure market volatility.
    Basically, this tool tells us whether the market is calm or volatile.
    When the market is moving slowly, then the bands contract, while when the market is less stable and more volatile, the bands expand.

    Notice how in the following chart when the price stood still, the bands kept a close distance from each other, whereas when the price rose, the bands are separated.
    [​IMG]

    That is how simple Bollinger bands are. You don’t need to know their history, how they are calculated or all of the mathematical formulas behind, as the most important thing is to learn how to apply them in your trading.

    Bollinger Bands rebound

    Important thing you need to know about Bollinger bands is that price tends to return to the middle area between the bands, that’s basically the idea of this bounce. If such a case occurs, could you tell, seeing the graph below, where you would expect the price to go?
    [​IMG]

    If you said down, you guessed right! As you can see, the price movement would usually stabilize around the middle of the bands.

    What you just saw is a classic Bollinger bands rebound.
    The reason for the price return is that the strips act as mini supports and resistances.
    The longer the length of time you’re with the band, the stronger they will be. Many traders have developed forex trading strategies based on these boards, which are best used when there is a trending market.

    Let’s see now how to use “Bollinger” bands when the market is in a trend.
    When the bands are very close to each other, it usually means that a break will happen soon. If the bar starts to break above the upper band, the price continues to move up usually. If the bar begins to break below the lower band, the price usually goes down.
    [​IMG]

    That is how the “Bollinger” bands usually work when pressed against each other.
    This method is designed to observe a major move as soon as possible.
    Now you have a better understanding of what are Bollinger bands and how to use them. There are many other strategies you can use with Bollinger bands, however, the two basics ones that were presented above are the most common.

    As always, I highly recommend to combine Bollinger bands with some other indicators for a greater certainty of a profitable trade.
     
  2. Sharon Higgins

    Sharon Higgins New Member

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    Firstly thanks for explaining it in simple way while I believe Bollinger Bands is one of the reliable and most trustable indicators at present, I don’t suggest anyone to use these indicators alone, it is must that we put other stuff only that way we will be able to find positive results. I am lucky enough that i have quality broker in OctaFX since with them, I am able to work out everything nicely especially with their educational guide while there are also many demo contest available like Champion, cTrader or Southampton Supreme, it all makes practicing really fun and helps me a lot with practicing things with having massive motivation due to seriously high prizes up to 1000 USD and more!
     
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