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Tuesday, 9 July 2019

How to Use Bollinger Bands Indicators

Bollinger Bands are one of the technical indicators to measure volatility and determine the direction of price movement trends. Apart from the direction of the trend, this indicator is also used to determine overbought and oversold conditions. Characteristic, in market conditions sideways (ranging), the price moves between two bands (ribbon). This indicator was created by John Bollinger, a technician trader in 1980. Now, this indicator is very popularly used in trading in various types of financial markets, including the forex market.



Elements in Bollinger Bands Indicators
Bollinger Bands indicator consists of a Simple Moving Average (SMA) with two bands or bands that are above and below the SMA line. The upper band is called Upper Bollinger Band and the lower band is called Lower Bollinger Band.

The Upper and Lower Bands are determined based on the addition and subtraction of the SMA value by standard deviation. While the standard deviation measures volatility to how far the price can move from the true value. Formulation:


Because it also takes into account the measurement of volatility, the two bands will move according to market conditions.

Bollinger Bands can be found on trading platforms in general, including Metatrader4 (MT4) and Metatrader5 (MT5) with the default SMA parameters: 20 periods, and standard deviations: 2. To place them, look for the Insert menu > Indicators >>> Trend >> > Bollinger Bands.

In general, an overbought condition occurs when the price has touched the Upper Band, but the closing price (Close) is still below the Upper Band. While the condition was stated oversold if the price had touched the Lower Band, but it was still closed above the Lower Band.

Also Read : How to use Parabolic SAR?

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