The Bollinger band: One of the oldest and best indicators to apply in 2018
Any Kind of proven good technical indicators requires to include several forms of volatility channels. A trend can be identified using a method like a volatility channel. It uses the theory that if the purchase price moves beyond a moving average plus extra
amount, a tendency may have started.
The Bollinger band indicator is a volatility channel created by financial analyst John Bollinger more than 30 years ago. It is still one of the best indicators for trading among the various volatility channel methods.
The Bollinger band indicator uses two guidelines, first one is the number of days for the moving average and the second one is the number of standard deviations that you would like the band deviated from the moving average. The most frequent values are 2 or 2.5 standard deviations.
In stats, the typical deviation is a way of measuring how to spread aside from the values of a data set in place are. But In finance, standard deviation functions as a means of gauging volatility.
What’s actually the bottom line?
A Bollinger band indicator will adjust to Forex market volatility. It widens as volatility rises and narrows as volatility reduces. A long-period trend-following system using Bollinger band indicator might use two standard deviations and a 350-day moving average.
You can start an extended position if the prior day’s close is above the channel peak, and have a short if the prior day’s close is lower than the bottom of Bollinger band. Exit point would be when the prior day’s close crosses back again through the moving average.
No system will win 100% of the time. What every investor should aim for is to have a system in place that will minimize losses while greatly improving their chances for profits. When using this valuable technical tool with other technical indicators that we will discuss in future articles, your chances of having successful trades greatly increase.
Use Bollinger Bands with other technical indicators such as MACD, %Bullish, and others to better determine when to enter your trades. This is specially critical for investors in the Forex market where technical analysis tools will show strong entry and exit points to your trades thus minimizing your losses.
The free e-book Understanding The Myths Of Market Trends And Patterns describes this and many other strategies to trade the Forex market.