Understanding a Bollinger Band and Its Usage


Posted May 14, 2020 by gracecustodio1

Understanding a Bollinger Band Bollinger Bands is made up of three lines: a centerline, and two price channels (bands) above and below it.

 
John Bollinger, a long-time market technician developed a technique in the 1980s of using a moving average with two trading bands over and under it. Bollinger Bands only add and subtract a standard deviation calculation, unlike a rate calculation of a normal moving average.

Standard deviation is a mathematical equation that measures volatility. It displays how the stock price can change from its true value. By determining the price volatility, Bollinger Bands adapt themselves to market conditions. They can find almost all of the price data needed between the two bands, and this is what makes them so convenient for traders. See Trading Strategy IQ Option for more.

Understanding a Bollinger Band
Bollinger Bands is made up of three lines: a centerline, and two price channels (bands) above and below it. The centerline is an exponential moving average, and the price channels are the standard deviations of the assets being analyzed. The bands will expand and shrink as the price movement of stocks becomes volatile (expansion) or becomes restricted into a close trading pattern (contraction).

Usage in trading
Below are theories that you can follow when trading binary using the Bollinger Bands indicator:
• The currency pair's range of movement is inside the upper and lower lines. If the price comes near to one of the lines, the opposite line will serve as the price's next point except if there is a breakout.
• If the price is varying near the upper or lower band for too long, the pair is in the uptrend or the downtrend each. The opposite line can be seen as the support or resistance band.
• The gap between the bands is shrinking during times of low volatility. A strong movement usually follows such terms after a breakout.
• Closing above or below the band's area is a sign for trend enhancing and continuation of the borderline is shown the same way as the price.
• If the price goes over the upper line but is going down, it is a sell sign with the lower line as the mark. The same is right in the opposite trend. Needs support.
• The indicator gives no 100% accurate predictions for the currency pair's action. You have to do further market analysis in case the price meets one of the lines and you have to look for support signals from other indicators or the graph patterns.
• Standard settings are based on the simple moving average with a span of 20 and the number of standard deviations corresponding 2. The indicator was produced for assets trading.

https://www.binarytradingmalaysia.com/bollingerband-strategy/
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Issued By gracecustodio1
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Categories Banking , Blogging , Finance
Last Updated May 14, 2020