Bollinger bands and forex trading

This is the second article in our Bollinger Bands series. In that article, we covered the background of the Bollinger Bands indicator, how it is calculated, and how it looks on a chart.

John Bollinger designed his bands in order to measure if prices were high or low on a comparative basis with relative volatility. Traders use the bands to anticipate increases and decreases in volatility that signal imminent trend changes are on the way. The indicator looks like an expanding and contracting envelope drawn about the pricing indicia on a typical chart.

The two boundary lines represent two standard deviations of distance above and below the moving average. Over time, the bands act like an accordion playing music.

How to Use Bollinger Bands - qoxoxoxiqel.web.fc2.com

In the example above, the volatility starts with high values and a wide spread between the bands. Over time, the candlesticks converge on the centerline, signifying a period of consolidation and low volatility, only to breakout soon thereafter with a strong upward price thrust. The key points of reference are band bounces and squeeze reactions.

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Skill in interpreting and understanding Bollinger Band signals must be developed over time, and complementing the Bollinger Bands tool with another indicator is always recommended for further confirmation of potential trend changes. In the next article on the Bollinger Bands indicator, we will put all of this information together to illustrate a simple trading system using Bollinger Band analysis.

Bollinger Bands | Forex Trading Co

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