The infamous Black Scholes Model possessed the same statistical characteristics as Bollinger bands in their capacity to indicate a relatively over or under priced security.

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The bands are a measure of how far price is from a simple moving average. The upper and lower band are both set at 2 standard deviations away from that simple moving average. If the price begins to push in the direction of the upper or lower band it could be an indication of the market beginning to trend in that direction. Getting an indication of a trending market could help you ride the trend to its completion. The particular settings are up to the individual trader It differs from person to person.

When prices are repelled by the top band twice it can mean that the market has run out of steam and a race to the bottom band could occur, these instances are a feature of volatility within the market.

In the above chart, prices were repelled twice, and then pushed down to the bottom band.

Bollinger Bands - Fidelity

This double top also marked the beginning of a downtrend. The opposite will also occur regularly at significant lows. Where prices drop to the bottom band twice in short order and then are repelled upwards, beginning an uptrend in the market.

In the chart above two W patterns formed in the uptrend, adding weight to the trend and signifying that a trader should stick with the trend. A trader should always wait until all of the four steps are complete before trading the move.

The Bollinger band squeeze happens when price movements contract to a narrow range. In the example above, a squeeze always occurred before any significant move in prices. It is a valuable indication of the possibility of volatility ahead. So a trader will always be aware of the position and trend in the Bollinger bands. When trading using this Bollinger bands strategy, we are looking for contraction in the bands.

Above is the EURCHF 60 minute chart lets see what sort of signals are generated from it. So, if a candle completes above the MA, then you go long, and if a candle completes below you go short.

In both the downward trend and the upward trend i the chart above, the bands acted as consolidation points. The fact that prices were repelled by the bands showed the trader that they could stick with the trend. Another Bollinger bands strategy is riding the bands, this is when we use the bands as a trend recognition tool.

This occurrence shows the trader that the trend is likely to continue and has power behind it. So the bands contain If the price tags the upper or lower band, it shows us that there is significance in that move. Because it is more powerful than IF a powerful move occurs, it can be common for the simple moving average to act as support for the price. The price will usually stay above or below the SMA in a trend move.

This knowledge can be used in managing your position when you are trend trading. If you would like more info on trading strategies why not check out our day trading strategies post! Learn how an Elliott Wave Forex trader applies the theory to trading successfully and profitably. These are EXACT price patterns I used for years to steadily grow my trading account while taking minimum risk.

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How to Trade Forex 8 Best Trading Strategies How to Trade Elliott Wave How to use Stochastic How to use RSI How to use MACD How to use Bollinger Bands How to use Candlesticks Advice on Risk Management How to use C. Our Strategy What We Do Performance Blog Members Area Log in. Bollinger bands strategy the COMPLETE how-to guide! April 26, Posted by: Forex Blog No Comments. As traders we are always looking for that edge to tighten up our trading effectiveness and cut down on losers!

You cant go wrong by adding an understanding of Bollinger band strategy into your analysis mix. Bollinger bands on a chart: A 20 period simple moving average. The upper band set 2 standard deviations above the MA.

The lower band set 2 standard deviations below the MA. And there you have it, set up and ready to go. How to use Bollinger bands with Double bottoms and double tops, trading the M and W! Firstly the price puts in a reaction high to the upper band. Next a pullback to the simple moving average. Firstly a low forms, usually below the lower band. And lastly, the pattern is confirmed when the price rallies to the upper band and completes two candles whose real bodies are above the middle band.

How does it work? Bollinger bands as support and resistance: Things to take away: When used alone the bands offer little in the way of timing or trade entry indicators. But, The Bollinger bands do give the trader a useful benchmark to judge how the price action is likely to act given certain action.

Bollinger band strategy uses these phenomena to trade trend moves within a market These points alone are evidence enough that we all should take heed of the bands!

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How do I create a trading strategy with Bollinger Bands® and moving averages? | Investopedia

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