Introduction to Bollinger Bands; helpful in FOREX trading

Introduction to Bollinger Bands; helpful in FOREX trading

Forex trading has become one of the most looked after occupation for many people around the world. This is due to its great advantages over other capital markets and its high potential profitability; among these advantages we can find a very easy accessibility thanks to the Internet and its high liquidity and high leverage.

But in exchange, as in all other speculative activities in the capital markets is not a problem new and experienced traders will face each time they open their forex trading stations. This is how to predict the behavior of the Forex market over time in order to make the highest amount of profit with less risk possible.

One of the techniques used to predict the Forex market behavior is that based on Bollinger bands.

The Bollinger bands are what is called technical trading tool used in the capital markets (including Forex) created by John Bollinger in the early 1980s. This technique was formulated based on the need for adaptive trading bands and the discovery that the volatility of the markets was a dynamic phenomenon, not a static one, as was widely believed at the time.

The first thing to notice Bollinger Bands is that they consist of a set of three curves drawn in a forex chart in terms of currency prices. The middle group in the forex chart is a medium term trend and it is usually a simple moving average, which serves as a reference basis for large and small bands. Interval separating the upper and lower bands of the mid band is calculated using the volatility of the market, typically the standard deviation of the same data were used for the average.

Standard used with these parameters analysis technique is 20 times the average and two standard deviations of the gap between the bands. These parameters can be adjusted to suit your trading goals.

In future articles we will talk about how these bands will give a very good prediction of what the market will do next, based on parameters and statistics built in Bollinger bands.



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