How to Use Bollinger Bands explained

A very popular Forex trading indicator is Bollinger Bands. It is so popular because it is very easy to use and to understand. This indicator is a way to measure the market’s volatility. Volatility means how much the market is fluctuating, if there is no fluctuation at all than there is very little volatility which means there are very few good trading options. On the other hand, when a market is very volatile than the market is bouncing up and down which will give us quite a few openings to start a trade.

Basically the Bollinger bands are 2 lines that will either squeeze /contract together or they will expand. If they will squeeze together than the market is really slow and there is not much volatility. If they expand than a bullish or bearish signal might be close by.

When a Bollinger squeeze is apparent than this means that a breakout will occur. A bullish signal will occur when the candlesticks are breaking out of the upper band and a bearish signal will occur when the candlesticks will break out on the lower band.

On the left you see that the bands are contracting (squeezing) and that the candlesticks breaks the upper band. On the right you see that the price continues to rice and if you had chosen a bullish position than you would have made yourself quite some money.

The Bollinger Bounce

The bollinger bands act as mini support and resistance levels and when there is no clear trend than the price will tend to bounce back and up again between the bollinger bands. The price always tends to go back to the middle area of the bands.

This picture is a great example of a Bollinger Bounce. You notice that the price first went down and touched the lower band. right after touching it went back up again and now it is touching the upper band. There is a very big change that the price will go back down again until it reaches the lower band. This bouncing will continue until there comes a clear trend in the price.

How to Master Bollinger Bands?

The bollinger bands strategy is pretty simple because you either expect it to bounce back when it touches one of the bands, or you expect a breakout when the bands tend to squeeze. You might think that this is to simple but that really is all about it. Off course this bollinger bands strategy does not always work because there will also be a lot of times when they do something different than you expect. That is the exact reason why you should never make your trades dependent on one single indicator.

If you want to master working with the bollinger bands indicator than this great video I found on Youtube might help you. It has more in dept explanation how the bands work and when a bullish or bearish signal is likely to occur.

If you are interested in understanding the exact calculation behind this indicator than take a visit at bollingerbands.com

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