Definition:
Bollinger Bands (BB) are the common chart indicators which is used to recognize the strength/volume of volatile market. Commonly, Bollinger Bands tells us whether a forex trading market is few or crowded. When the market is few, BB is narrowing. Meanwhile, when the market is crowded, BB will be widening.
If you want to know the history, formula, and all kinds about Bollinger Bands, you can read them in bollingerbands.com
The Classic Bollinger Bounce
One of the Bollinger Bands Technical Analysis in forex trading is classic bollinger bounce. The first thing that you need to know about Bollinger Bands is that the price movement has a tendency to go back to the middle (middle of BB). From this understanding, you can take the right position to get profit. From the picture above, you can predict where the next price movement will go.
If your answer is ‘down’, then it is right. The price movement will and is going down towards the middle line of BB.
What will you just learned is called Classic Bollinger Bounce. The reason of ‘bounce’ is because Bollinger bands is like a mini support and resistance. The bigger time frame that you use, the bigger range of the BB. Bollinger Bands is often used by forex traders who take advantage of swing condition (85% of the whole time) to get profit.
Bollinger Squeeze
Another Bollinger Bands Technical Analysis is Bollinger Squeeze. The meaning of Squeeze is shrinking. If the Bollinger Bands is started to shrink, it is likely to be a breakout. In a ‘squeeze’ condition, if a candlestick is going upward and passing the upper Bollinger Bands line, a breakout will happen and going upwards.
If a candlestick started to go to downward and pass the below BB line, a breakout will happen and go downward.
In the following pictures, the BB is shrinking and the candlestick is going upwards.
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Thursday, November 12, 2009
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