The technical indicators used in Bollinger bands are moving averages, weighted averages, exponential moving averages, standard deviation values and zigs. The former two are known as moving averages, as they are used to indicate a general trend. They are also useful in indicating market reversals. Moving averages are more reliable than other technical indicators in indicating price changes that are within a range and are widely used in Forex trading. However, moving averages fail to provide an effective tool for the short term trader, and do not provide insight into market direction or trend reversal.
Bollinger Bands can be set to indicate either a long or short position. They are most commonly used in day trading and provide excellent entry and exit signals. They are very precise and generate very reliable signals, especially when the market is volatile. Since the market is essentially a random process, this means that any given day may not have a consistent high or low, and thus the indicator will most likely go up or down over time.
The upper band in a bollinger band represents a support zone, meaning the price is expected to be held within this band for some period of time. Conversely, the lower band acts as resistance and indicates a point where the price may reversal back to the support zone. Trading in these bands is generally a good indicator to sell a stock before it breaks out of this support zone.
Key Advantage of Bollinger Bands Indicator
A key advantage of Bollinger Bands is that they are easy to understand and interpret. It is easy to see where a trend is developing, and also to determine if it is a valid trend. There is nothing more difficult than interpreting a simple futures chart, whereas charts with more complex moving averages and RSI charts are more difficult to interpret. Many experienced traders use Bollinger bands as part of their fundamental analysis because of this ease of understanding.
Bollinger bands SIGNALS IN TRADING
As well as providing excellent signals, Bollinger bands can also be used as resistance and support. This is particularly useful when trading in volatile markets. In these conditions, when the market is very volatile, it is difficult to draw accurate long-term predictions. However, by trading on moving averages or other technical indicators, you can determine where a currency will be over a period of time. Bollinger bands provide a second signal to indicate if the price has broken through a support zone. This gives you a greater chance of making a profit in such circumstances.
Bollinger bands STRATEGY
The use of Bollinger bands is also popular with day trading strategies. Traders who employ this style of trading put an equal emphasis on breaking open higher than their target price to indicate a strong trend. When the price does break through the target, it is often used as a signal to execute short term trades. These trades can be used to gain profit quickly, which is why many day traders prefer to employ the use of bollinger bands for their technical analysis. This ensures that their trading decisions are based on reliable indicators, rather than on subjective opinions or gut feeling.
Technical Analysis with Bollinger Bands Indicator
While this indicator provides the basis for making good technical and fundamental analysis, it is up to the trader to understand that it is not the one and only indicator that can tell you where the market is heading. For this reason, it is important that you know how to read the bands and what signals to look for when you are trading on this volatile market. You can learn more about the bands and how to use them for technical analysis by visiting our website dedicated to trading in foreign exchange markets. You will receive up to date news, expert advice and free updates on how to identify overbought or oversold conditions in the market.