Bollinger Bands – Forex
We’d love to tell you that using Bollinger bands involve quaffing a lot of champagne (well, if you use them well, you never know), but actually they are named after their inventor who shares the same name as the famous fizzy stuff, John Bollinger. Bollie Bands along with Forex RSI and Parabolic SAR, are one of the most widely used indicators in the currency markets.
BBs are forex indicators that show the volatility of prices- how fast they are moving up and down. The bands narrow when markets are slow and widen when prices start jumping around a bit.
There are 3 lines:
- A moving average (MA) trend line, then
- An upper band and
- a lower band.
We won’t go into the mathmatical formula that sits behind these indicators (you can always look it up), but suffice to say that you can alter the period (the longer the period, the smoother the graph), and the standard deviation (a lower S.D. brings the upper an lower bands together, a higher S.D. pulls them apart.
These numbers are typically set to 20 (MA) and 2(S.D)
Generally, a simple moving average is used, but you can use other types of averages, such as exponential moving averages. More on this later.
How to Use Bollinger Bands in Forex
Here are some examples of how they are used by traders:
- Buy when the pair you are trading touches the lower Bollinger Band and exit when price touches the middle band.
- Buy when the price breaks out over the upper Bollinger Band or sell when price falls below the lower Band.
- Wait until the bands are relatively flat (no trend either up or down) for an extended time, and then trade the currency oscillating between the bands in the channel.
As with all indicators, it’s best to use a combination, while at the same time keeping an eye on the fundamentals and any forex news that is coming up. So, for example, you could use Bollinger Bands along with a trendline to give yourself more confidence that your prediction is going to come to pass.
Use Bollinger Bands at the Following Forex Brokers
|Broker||Min Account Size||Leverage||Spread||US Traders||Review||Open Account|
|$100||1:200||3-5 majors||Review||Visit Broker Demo|
|$100||1:888||1 pip majors||Review||Visit Broker Demo|
|$100||1:50||2+ Majors||Review||Visit Broker Demo|