How Bollinger Bands Can Tell You What The FOREX Market Will Do Next.
Carl's 2 Cents:
I use Bollinger Bands
and Support / Resistance lines to help me decide
the entry point. I don't use Bollinger
Bands to make trade decisions though. I
like to use the
divergence method - divergence between
prices and MACD Histogram and Momentum.
In Forex trading as in all other speculative activities in the
capital markets there is a major problem that all, new and
experienced traders, will face every time they open their Forex
trading stations. This is, how to predict the behavior of the
Forex market over time in order to make the highest amount of
profits and with the less risk possible.
Among the techniques used in forecasting the behavior of the
Forex market, Bollinger Bands are one of the most widely used
and studied.
The first thing you should notice about Bollinger Bands is that
they consist of a set of three curves drawn in a Forex chart in
relation to the currency prices.
The central band is usually a simple moving average, and serves
as the reference base for the upper and lower bands. These two
bands are separated by two standard deviations of the central
band, and the average is taken over 20 periods of the time frame
you are using, when using the standard parameters of Bollinger
Bands.
Our main issue here is how Bollinger Bands will help you in
identifying and predicting what the markets are doing and will
do next. There is a basic analysis that you can perform in order
to have an idea of what comes ahead with the behavior of the
markets based on Bollinger Bands.
As it was mentioned above, Bollinger Bands are three bands based
on moving averages and that are closely related to the
volatility of the market, making the channel between the upper
and lower bands wider or narrower depending on how high or low
the volatility of the markets is.
Now for the forecast. Experienced FOREX Traders know that when
the prices start touching the upper Bollinger Band in a
repetitive pattern, that means that prices are very likely to go
down, so they sell. And on the contrary situation, when the
prices continually touch the lower band that's an indication
that prices will likely go up and it's time to buy the
particular currency you maybe trading.
Of course there is more detail on the analysis of Bollinger
Bands but all of it is based on this observation about the
prices touching one of this bands. And as with all the Forex
indicators, they are not perfect, but that doesn't mean they
can't be very good.
About the author:
Adrian Pablo is a Forex freelance writer with articles published
in a number of places.
Written by: Adrian Pablo
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