Forex bollinger bands

Bollinger Bands are used in forex trading to identify entry and exit points with ranging trends or to spot increasing volatility and trend changes.
Table of contents

• The Importance Of Bollinger Bands In FX Trading
• Using “Bollinger Bands” Indicator in Trading
• What are Bollinger Bands?
• The Bollinger Bands Forex Strategy Guide | Admiral Markets - Admirals

We often overlook a crucial aspect of price action: its volatility. How much the market moves is as important as which direction the market moves. To integrate volatility into our analysis, Bollinger Bands offer a robust tool. In this concise guide with in-depth examples, you will learn how to use Bollinger Bands to boost your price action analysis. As you can see above, Bollinger Bands consists of three lines driven by price fluctuations.

In a nutshell, Bollinger Bands create an envelope around a moving average of price. And the width of that envelope depends on the price volatility or standard deviation. Hence, Bollinger Bands expand and contract according to the standard deviation of past price action. This characteristic of the Bollinger Bands is the key to using it to read price action in the context of its recent volatility.

So our focus as price action traders is to watch how the Bands interact with price action. From there, you will be able to uncover valuable trading information. You can enhance its performance by looking for reasons that support a sideways market. For instance, the forex market tends to move sideways just before the release of critical economic data.

During that pre-news period, you might consider taking quick trades by fading moves within the Bollinger Bands. However, following this trading premise, you must flatten your positions before the actual release. Of course, the market might not always bounce perfectly between the two lines. Hence, you need to be agile when entering and exiting the market as a scalper.

What are Bollinger Bands?

For an excellent example of using the Bollinger Bands in a sideways market, refer to the Gimmee Bar setup. It confirms market strength. With that formation, the market tells you not to fight the trend unless you want to trade contrarian. It is normal to encounter this scenario after a successful price breakout. When you spot the market pushing against the Bollinger Bands, pay attention to whether the candlesticks managed to close beyond the Band.

This observation can reveal important clues for assessing the current trend.

You will see examples of this in the in-depth examples below. The most straightforward method is to join the breakout as the market breaks out of the Bollinger Bands. In a sideways market, this trading method might lead to many whipsaws.

This is why you should consider the conservative entry when you need more confirmation. For more examples of using Bollinger Bands for breakouts, look at this trading strategy. John Bollinger designed the Bands to contain most price action under normal market circumstances.

Prices cannot stay beyond the Bollinger Bands for long. The market will soon snap back within the Bollinger Bands, and this snapback reaction will take the form of a reversal or retracement.

If you are a reversal trader , you should pay attention to outliers bars. As long as a price bar forms entirely beyond the Bollinger Bands, it is an outlier bar. It does not matter if the outlier bar is bullish or bearish. But as with any other trend reversal signal, you should not give it too much weight in isolation. Take a reversal setup only if you find supporting signals.

For instance, look for a volume surge that implies a weak market ready to reverse. Many cases of price leaping beyond the Bollinger Bands are also exhaustion gaps. Hence, you can apply the same rules of analysis you use for trading exhaustion gaps. Refer to Example 2 in the next section. An outlier bar is not just helpful for trading reversals. It is also an excellent tool for profit-taking. Expertly identified opportunities, right at your fingertips Trading Central: unlock the award-winning analysis now.

Open Live Account. Follow Us. Join Us. Home bollinger bands. Browsing Tag. Trading Education. James Harte Oct 31, 1, In the first part of our series on how to find the trend in forex, we looked at some basic ways that you can identify a trend in forex using price action and simple trend line techniques.

For FX traders new to the forex markets, it is…. Trading Tips. Stavros Tousios Sep 18, Bollinger bands are a price channel comprised of three bands that contain price action.