Bollinger Bands Secrets! – Analytics & Forecasts – 10 October 2022

Bollinger Bands are a volatility indicator, used by traders to identify areas of support and resistance and areas where an asset could experience increased or decreased volatility. Bollinger Bands are calculated from three lines drawn on a price chart.

The first is the simple moving average (SMA) of an asset’s price over a given period, usually 20 days. The top band is the SMA plus two standard deviations that have been multiplied by two, while the bottom band is the SMA minus two standard deviations that have been multiplied by two.

The exact method to calculate the different Bollinger Bands is as follows:

  • The upper band = 20-day SMA + (20-day standard deviation multiplied by 2)
  • The lower band = 20-day SMA – (20-day standard deviation multiplied by 2)
  • The SMA is calculated by adding up the closing prices in a given period and dividing that number by the total number of periods

Many traders use Bollinger Bands to indicate areas of market volatility, and assume that the more the bands deviate from the SMA, the more volatile the underlying market is. Conversely, if the bands are narrow, many traders take this to show that the underlying market price is stable.

When the bands widen, traders refer to this as a Bollinger bounce and believe that it is indicative of an upcoming pullback. Narrow bands are known as Bollinger squeezes and this is taken to indicate a close breakout in the underlying asset.

Bollinger bands are a lagging indicator, which some consider a drawback. This means they seek to confirm trends rather than predict future market movements. Indicators that seek to predict future market movements are known as leading indicators, and these include relative strength index (RSI) or the stochastic oscillator.

However, lagging indicators such as Bollinger Bands can be used to confirm a trend before entering a position, although this is most effectively done in conjunction with other technical indicators. This means that a trader can miss the start of a trend, but still make a profit once they have used a lagging indicator, or a collection of lagging indicators, to confirm the trend.

If you don’t like the standard Bollinger Bandsyou can try the Exclusive Bollinger.

Exclusive Bollinger for MetaTrader 4:

Exclusive Bollinger for MetaTrader 5:

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