We know that getting started in Forex is not easy, especially with so much information to learn or take into account. The idea is that you don’t get overwhelmed, and you take one step at a time. That’s why in this opportunity we will talk about the Bollinger Bands, a tool that can help you a lot to improve your decision making in Forex.
In Forex there are a lot of indicators that you can take into account, however one of the most common is the Bollinger Bands.
Secrets to being a good Forex trader (Part 1)
Introduction to the use of Bollinger Bands
Bollinger bands are widely used indicators in forex technical analysis. It’s named after its creator, John Bollinger. These serve to identify whether an asset is being traded outside its usual levels. In other words, they help determine the volatility of the market.
Other things you can identify using the Bollinger Bands are the possible market highs or lows, whether or not there is a continuation of a trend or if, on the contrary, there is an imminent turn/break.
What does each line or band mean?
As you incorporate the Bollinger Bands into your trading strategy, you will notice that there are three bands that will appear on your screen, and each one means something.
First, the upper Bollinger band is formed from a calculation of the standard deviation of the price added to the moving average.
The lower Bollinger band is derived from a calculation of the standard deviation of the price subtracted from the moving average.
Also, the average line of the Bollinger Bands indicator is a (normally) moving average of the Bitcoin Rush price over a given period.
Thus, these bands form a kind of channel or range in which the price of the pair under analysis is expected to move.
Thanks to this, you can see with the naked eye that if the bands are too far apart, there is a lot of volatility in the market. Stability is observed the closer the bands are to each other. When there is little volatility, one speaks of a consolidated market.