Forex trading is the most volatile market in the money market. The fast-changing market trends make it difficult for a trader to follow. To make it easy for you in the forex market, invest in the Bollinger band.
Bollinger band is the most popular trading instrument that is utilized in forex trading. The Bollinger band provides you with the technical solution you need in the volatile forex market.
With the Bollinger band tool, you need not worry about the fast-changing market prices. The device will update the market trend, thus enabling you to invest in profitable forex.
What Are The Features Of Bollinger Bands?
Bollinger bands have unique features that make them appropriate for the dynamic forex market. Some of these features include:
1. Trend Lines
A trader can use Bollinger bands to draw trend lines. Trend lines are standard deviation lines that are derived from a simple moving average price of a stock.
These lines help a trader to identify when the trend of the security market. The lines indicate the increase or decrease of the sales and purchases of the securities.
2. Market Change Indicator
The Bollinger bands show the sales and purchases of the securities. These bands indicate a true reflection of the market situation by increasing or decreasing sales and purchases. Market trends help any forex trader in making decisions of when to buy or sell securities.
3. Setting Limits
You can use the upper and lower Bollinger bands to set your limits. The two bands indicate the price volatility. You will be able to set your trade limits between the two bands, thus maximizing profits.
4. Determining the Volatile Market
It is not easy to study a highly volatile forex market. However, Bollinger bands enable you to read the volatility of the market. The bars measure the deviation of the price from the average. These bands change their shape anytime there is an increase or a decrease in the prices. It is very easy to spot a change in the form of the band. This feature helps forex traders to make the swift decision which is essential in forex trading.
5. Backup Plan
The fluctuating markets can easily mess you up if you do not have a backup plan. Bollinger bands are an essential plan B that every forex trader must invest in. The bands help you to notice the entry and exit points, thus save you from disappointment. Bollinger bands help you in making wise decisions that minimize losses.
6. Assurance of Success
The bottom line of any business is to make profits. The Bollinger bands provide the forex market investors a platform where they can make decisions. These bands will clearly show when the currencies are doing well. Wise decisions yield high returns.
How to Use Bollinger Bands
Although Bollinger bands give highly technical analyses of the forex market, it is a very easy tool.
1. Check the Position of The Prices
When the prices are near the upper band, it means that the market is overbought. When the prices move close to the lower band, the market is oversold. When prices are between the upper and the lower band, it is an indication that the prices are stable.
2. Look at the Lengths of the Bands
The lengths of the Bollinger bands keep changing with the market trends. When the market is highly volatile, the bands widen the band’s contract during less volatile days.
3. Use the Squeeze
The squeeze is the coming together of the bands. This coming together is caused by the constricting moving average. The compression is used to determine the direction of the market.
During low volatility, the ads are wide apart. The bands squeeze together during the high volatility periods. A low volatility period is a sign that the market will improve in the future. Chances of future demands increase the trading opportunities.
On the other hand, high volatility is an indication of reduced future needs. A decrease in volatility increases the chances of exiting a trade.
How to Calculate Bollinger Bands
To calculate Bollinger bands, follow these simple steps:
- Compute a simple moving average of your choice by setting the limit of the SMA.
- Obtain the standard deviation of the security price by taking the square root of the variance.
- Determine the upper and lower bands by multiplying the standard deviation by two.