Trading With Bollinger Bands Made Simple
July 23, 2010 by Kelvin
Filed under Forex Indicator
The Bollinger band is an indicator that is made up of an upper line, a lower line and a moving average line in between the 2 bands. Trading with Bollinger bands can help you to have an understanding on the market conditions. With a better understanding of the market condition, you will be less likely to enter trades that are against the market movement.
Using this indicator, you will be able to know whether the market is in a state of consolidation or moving with high volatility. All you need to do is to observe the width of the bands, if they are very wide, you are in a period of high volatility and if they are very narrow, you are likely to be in a period of consolidation.
Another thing I like about trading with Bollinger bands is its ability to identify possible breakout. Forex breakout is one of my favourite trading strategies as it is very easy to spot and easy to trade. I will definitely recommend this strategy to any new trader.
When you are trading breakout, you should be looking out for any currency pairs that have a narrow Bollinger bands as it is a sign that the market is in consolidation. Once you see the Bollinger bands widening, you are ready to get into a breakout trade. All you need is a valid trend line break and you are ready to rock.
Bollinger Bands Widening
Other than trading breakouts, you can also use the Bollinger bands to help you pick your entry and exit for a ranging market. When you see the price hitting the upper bands, you can check your oscillator like the RSI or Stochastic to see if the market is overbought or not. If it is indeed overbought, you can then enter a SHORT trade to trade the range. You can either use the moving average in the middle as your target exit or you can use the lower band for your exit.
Ranging Trading
So you can start trading with bollinger bands today on your demo account to see if it fits into your trading strategy or not.
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