Bollinger band strategy forex

Bollinger brands can be defined as useful indicators that are seen in most charting packages and used by forex traders and investors to deliver useful pieces of information like trends volatility, high or low price irregularities and market fluctuations. A Bollinger brand forex strategy is a set of intentions which provides a forex trader with complete rules on when to take trading actions. These strategies include indicator based trade filters and triggers. Trade filters recognizes the set up situations while the trade triggers tells when a particular trade action should be taken.

COMPONENTS OF A BOLLINGER BRAND FOREX STRATEGY

A Bollinger brand forex strategy is made up of three separate indicators which shows price activities at different points in the chart. The three unique indicators of the Bollinger band forex strategy are 

1.    THE CENTRAL MOVING AVERAGE OR THE MAIN LINE:

This is said to be the stirring average of the price. The main moving line displays an ironed or exact version of the price which is used to indicate the direction of the market trend. The main line is calculated as a conventional moving average. 

2.    THE UPPER AND LOWER BRANDS OR THE OUTER LINES

This is used by the Bollinger indicator to encompass the idea of the moving average. The outer line is calculated by means of taking the moving average with the total addition of the X standard deviation. The upper and lower line are seen to run proportional when using a standard Bollinger indicator. This only means that the center moving average runs at an equal distance between the upper and lower lines.

3.    THE BANDWIDTH OR THE DISTANCE BETWEEN BANDS 

This is said to be the distance between the upper and lower lines of a Bollinger brand. The bandwidth is seen as an absolute measure of volatility. This means that the greater the bandwidth, the higher the price action. The bandwidth is reliant on the standard deviation that is a ration of how far the price is differing from the average. It is also useful in the detection of rising volatility and tightening periods.

BASIC BOLLINGER BRANDS TRADING STRATEGIES

1.    TRENDING STRATEGY:

The Bollinger main line can be used in the analysis of market trends and can also be on its own by using a grouping of the Bollinger and moving average. The moving average can be used in the detection of crossover signal types. In this instance, an upward cross is a bullish signal while a downward cross is a bearish signal.

2.    PRICE EXTREME STRATEGY:

The upper and lower bars which are found on the Bollinger indicator can be used for the recognition of overbought and oversold states. They do these by marking fundamentally mark extreme points in price when prices are at high and low points.

3.    VOLATILITY BREAKOUTS STRATEGY:

A volatility breakout can be defined as a point in which a low volatile market turns to be a high volatile market. This situation occurs with a robust directional price movement. A volatility breakout occurs after the price undergoes a range bound for a period in time and speed up demand and supply.

In conclusion, the use of Bollinger trading strategy in forex trading is a promising feature for a better and more successful trading platform.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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