Forex Learning technical analysis-Bollinger Bands-Topic The Widely used Bollinger bands which isa technical analysis tool defined by a set of lines plotted two standard deviations which is positively and negatively away from a simple moving average (SMA) of the security’s price, but can be adjusted to user preferences. Bollinger Bands were developed by famous technical trader John Bollinger,
Few Common Practices where Bollinger bands can be used in trading Stocks Forex Technical Analysis
- Sharp moves after a relatively calm market tend to occur after the bands tighten to the average (volatility lessens).Because When market participants have slowed their activities and are waiting for the market to tell them where it is heading. Once a move starts, everybody jumps in to trade it.
- A move outside the bands calls for a continuation of the trend, not an end to it. Often, the first push of a major move will carry prices outside of the bands. This is an indication of strength in an up market and weakness in a down market. This can be seen nearly everywhere on the chart.
Because—volatility has not expanded yet to compensate for the new trend. Other indicators, such as RSI, can confirm this.
- Bottoms (tops) made outside the bands followed by bottoms (tops) made inside the bands call for reversals in trends. Because—market participants have not accepted the increase in volatility and therefore look for wide price swings to take profits.
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