Wednesday, 27 November 2019

Bollinger Bands And Simple Moving Average

This time I will discuss two simple indicators that are related to one another. Why are you siblings? Yes, because these two indicators are usually installed in one "package" and are complementary. So, why Bollinger Bands and Simple Moving Average? Well, actually the reason is simple. This indicator is available on all trading platforms. The appearance is also simple, not complicated and relatively easy to understand. There is no harm in us trying the simplest indicator first, before bothering trying to understand indicators that are more complicated, right?

Ok ... now, the basic question is: how to use information from Bollinger Bands and Simple Moving Average? Here I will use Bollinger Bands as a benchmark to predict the limits of price movements, as a complement to the information provided by Simple Moving Average. Um, I'm not going to discuss the details of the Bollinger Bands calculations and formulas here, anyway, you will easily find them on many sites, if you are interested in a little fun.

Basically, Bollinger Bands calculate the Standard Deviation of the Simple Moving Average for a certain period. So, we will use BB to determine the limits of movement because of its nature as a barrier. According to this understanding, when the price touches the level of BB Upper line or BB Lower line, it indicates that the price movement is likely to reverse.

C'mon, let's look at the following chart: I use Hourly Time Frame in GBP / USD pair with Bollingger Bands 48 SMA period. Note the price movements that play in the Bollinger Bands area. It's just that, I need to remind you, the Bollinger Bands limits will be effective if the high school that is used shows a flat trend. Bollinger Bands limits will tend to be violated if high school tends to be trending.

One more thing, the use of Bollinger Bands indicator should be combined with other indicators to determine when Open Position. We can use the intersection between two high schools as a benchmark for entry, and use information from these Bollinger Bands as a complement to know the description of price movements. Or, we can also use the Bollinger Bands reference SMA and BB Upper line or Lower line as determinants of SL and TP.

With the benchmark intersection of SMA and Bollinger Bands as price constraints, if prices touch the Upper line BB and SMA with lower periods begin to fall and cut SMA with higher periods, we can open Sell positions. Likewise, if the price touches the Lower BB line and the SMA with a lower period starts to rise and cuts the SMA with a higher period, we can do an Open Position Buy.

Ok, what I mentioned above is just an example of the use of information that we can use from Bollinger Bands and Simple Moving Average. Each trader may have their own way to utilize information from an indicator. Please try yourself to find a "concoction" indicator that fits your trading style.

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