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Thursday, June 15, 2017

How to Use Bollinger Bands

Bollinger Bands was created by John Bollinger. One of the greatest market analyst. Using this indicator, we are able to see the range of market movement easily.

During high volatile market, we could see a wide range of Bollinger Bands and narrow range of Bands is created during low volatile market.

Basically, Bollinger Bands consists of three lines. The middle line is Exponential Moving Average while the other two lines above and below is price channels. Price channels indicate the extreme levels the might be reached by currency pair.






When currency pair reaches the upper line, it indicates overbought market which triggers sell signal. Vice versa, when currency pair reaches the lower line, it indicates oversold which triggers buy signal.

One of the common mistakes made by most of the people is when the price breaks above or below the band they thought that it is a buy or sell signal. It is not! 

It can happen normally due to a big event on the economic calendar. A wise technical analyst will wait and see until price movement is easily predicted and measured by their analysis. Once price movement moves in between the band, it will be easier for you to predict its movement and to determine when to enter the market.

Bollinger bands are good in combination with other indicators such as RSI.