In Forex trading as in all other speculative activities in the capital markets there is a major problem that all, new and experienced traders, will face every 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 profits and with the less risk possible. Among the techniques used in forecasting the behavior of the Forex market, Bollinger Bands are one of the most widely used and studied. The first thing you should notice about Bollinger Bands is that they consist of a set of three curves drawn in a forex chart in relation to the currency prices. The central band is usually a simple moving average, and serves as the reference base for the upper and lower bands. These two bands are separated by two standard deviations of the central band, and the average is taken over 20 periods of the time frame you are using, when using the standard parameters of Bollinger Bands. Our main issue here is how Bollinger Bands will help you in identifying and predicting what the markets are doing and will do next. There is a basic analysis that you can perform in order to have an idea of what comes ahead with the behavior of the markets based on Bollinger Bands. As it was mentioned above, Bollinger Bands are three bands based on moving averages and that are closely related to the volatility of the market, making the channel between the upper and lower bands wider or narrower depending on how high or low the volatility of the markets is. Now for the forecast. Experienced FOREX Traders know that when the prices start touching the upper Bollinger Band in a repetitive pattern, that means that prices are very likely to go down, so they sell. And on the contrary situation, when the prices continually touch the lower band thats an indication that prices will likely go up and its time to buy the particular currency you maybe trading. Of course there is more detail on the analysis of Bollinger Bands but all of it is based on this observation about the prices touching one of this bands. And as with all the forex indicators, they are not perfect, but that doesnt mean they cant be very good. |
