Bollinger Bands Forex Indicator

Bollinger Bands are what is called a technical trading tool used in the capital markets created by John Bollinger in the early 1980s. This technique was formulated based on the need for adaptive trading bands and the discovery that the volatility of the markets was a dynamic phenomenon, not a static one as was widely believed at the time. Normally there are two kinds of trading conditions that will repeat regularly to form a flowing chart, range bound and trending states. These kinds of condition usually happened when traders extremely overbought or oversold their share of market. These two contradictory conditions forces against each other and then causing the development of the relative support and resistance levels to approach one another. Trending markets and range bound condition work in a contradictory condition.

Bollinger Bands are simply measuring the highness or the lowness of the current price of equity or a currency pair relative to previous trades. Technically speaking, that is to measure the standard deviation from the moving average. Bollinger bands are calculated using the standard deviation of a price over the exact same period as moving averages and plotted as lines above and below the moving average. Moving averages are used to identify the underlying trend and are the middle band. The distance between upper and lower Bollinger bands simply give you the volatility of the market traded.

The purpose of these bands is to provide a relative definition of high and low. By definition, prices are high at the upper band and low at the lower band. This definition can help traders to determine patterns that assist them in determining trade decisions. Bollinger Bands are a technical tool used to determine whether a currency pair is high or low relative to its recent trading history. The default settings are 20 and 2, which means the indicator takes the past 20 time periods into account and bases its calculations based on two standard deviations from the mean. Bollinger recommends using 20 for the number of periods in the moving average and using 2 standard deviations.

Bollinger Bands provide a more relative of high and low definitions to compare price action and determine when to buy and sell. Some aspects such as momentum, volume, sentiment, open interest and inter-market data are important indicators. Be careful about making statistical conclusions from the Standard deviation calculation as most of the sample size of Bollinger Bands is too small for accurate statistic. It is not recommended to use Bollinger Bands for confirmation of price.