Forex Bollinger Bands Explained
The Forex Bollinger Bands is an indicator that is developed by John Bollinger and What Bollinger band can do for you is to help you to measure the volatility of the market. It can tell you the current situation of the market by using its upper and lower band. Whenever the market has low volatility, the bands will be narrow and whenever the market has high volatility, the bands will be wide.
In this blog, I will not be going through the various sophisticated mathematical calculations for the individual tools as I find them totally useless as most forex platform that you are using is able to automatically help you plot them out.
Here is the structure of the Bollinger bands
1) The upper band – which is showing you the simple moving average + 2 x standard deviation
2) The lower band – which is showing you the simple moving average – 2 x standard deviation
3) The Simple Moving Average (SMA)
How to Setup Your Bollinger Bands
Personally, I always stick to the default setting for my Bollinger band which is the 20 days SMA and plus minus 2 x standard deviation for the upper and lower bands.
However you can also adjust the setting if you find the price constantly penetrating the upper or lower bands.
What Bollinger Band Can Do For You
The upper band usually indicates a resistance level while the lower band usually indicates a support level. If you take a close looks at your Bollinger band. You will find that the price usually bounce off the Bollinger band whenever it touches the upper or lower band.
With this observation, you can use the upper and lower bands as support and resistance when planning your trade.
Besides using the upper and lower bands as the support or resistance, you can also make use of Bollinger bands to help you measure the volatility of the market.
When the upper and lower bands are narrow, you are actually in a period of consolidation and when the bands are widely apart, you are in a period of strong price movement. In my next post, I will show you the various uses of forex bollinger bands in trading and how you can make full use of its feature to help you in your trading.