Bollinger Bands

In Indicators

Perhaps the most innovative indicator have been invented by the famous financial analyst John Bollinger. They are most useful for monitoring price volatility and the trend, but, like any other indicator, alone can not be enough.

bollinger bands

As you can see, the Bollinger bands are composed with a middle line that is a moving average which indicates the trend (momentary), while the upper line and lower line are to determinate an overbought and oversold area, respectively, or the support and resistance points. Volatility instead is determined by the compression of the bands,so in the left side of the picture above you can see a situation of low volatility, or low volume, while in the right part you can immediately notice a clear situation of higher volatility.

Be careful not to confuse the Bollinger’s volatility with that described in the pages related to the economic calendar. While from the economic point of view a low volatility scenario is good for trading to sixty seconds expiring investments, from the technical point of view a situation such as that in the left part of the picture is really not a good situation.

Generally Bollinger bands are exploited in “breaking” situations by candles. There are strategies that following the breaking of the bands indicate the reversal point of the trend and others which, on the contrary, indicate the continuation of the trend. Bollinger bands are often associated with the use of a moving average and an oscillator such as RSI, Stochastics or MACD.

We suggest to use indicators with our partner Trading View and take a look also at the Candlestick Patterns guide.

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