Bollinger Bands indicator is one of the most popular technical indicators for traders in any financial market, whether investors trade stocks, indices or foreign exchange Forex. Bollinger Bands are a highly popular technical analysis technique which is developed by famous technical trader John Bollinger. He developed the technique of using a moving average with two trading bands above and below it.
For more information how to set the indicator in the terminal please click here. Once opened Demo you will be supplied with educational materials and online support in your own language. Bollinger Bands are among the most reliable trading indicators that traders can choose from.
In contrast to most other indicators, Bollinger Bands indicator is a non-static, but dynamic indicator which means that it adapts to new market conditions, changing its shape based on recent price action and measuring momentum and volatility.
Thus, Bollinger Bands have benefits over other standard indicators. Traders can use the Bollinger Bands to analyze the strength of trends and get a lot of important information this way. The Bollinger Bands indicator displays the current market volatility changes, confirms the direction, warns of a possible continuation or break-out of the trend, periods of consolidation, increasing volatility for break-outs as well as pinpoints local highs and lows.
The increasing distance between the upper and the lower bands while volatility is growing, suggests of a price developing in a trend which direction correlates with the direction of the Middle line. In contrast to the above, at times of decreasing volatility when the bands are closing in, we should be expecting the price to move sidewards in a range. Anyhow the price crossing of the Middle line from below or above may be interpreted as a signal to buy or to sell respectively. Bollinger Bands trading strategy aims to profit from oversold or overbought conditions on the market.
Prices are considered overextended on the upside when they touch the upper band overbought. They are overextended on the downside, when they touch the lower band oversold.
This strategy is used as an immediate signal to buy or sell the security. The usage of upper and lower bands as price targets is referred to as the simplest way of using Bollinger Bands strategy. If prices cross below the average, the lower band becomes the lower price target. If the prices cross above the same average, the upper band identifies the upper price target. In a Bollinger Band trading system an uptrend is shown by prices fluctuating between upper and middle bands.
In such cases if prices cross below the middle band, this warns of a trend reversal to the downside indicating a sell signal. In a downtrend, prices fluctuate between middle and lower bands, and the price crossing above the middle band warns of a trend reversal to the upside, indicating a buy signal.
The middle line of the indicator is calculated as the simple moving average with a day period, and for the calculation of the upper and lower lines, the standard deviation is added to or subtracted from the moving average.
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