Bollinger Bands

Another very important indicator, although not a stochastic one, is called Bollinger Bands.

Named for their inventor, technical analyst John Bollinger who invented them in 1982, Bollinger bands are indicators of volatility – rapid movement that is often a prelude to trend change.

Bollinger Bands are placed on top of a given price chart. They consist of a moving average based on the price, along with upper and lower ‘bands’ that define pricing "channels."

The Best Forex Brokers + Trading Platforms

Rating Bonus Description Minimum Deposit Regulation Visit
5
  • The leading Social Trading platform with 4.5m traders
  • Follow other traders or be a leader and earn
  • Personal service and VIP perks

$200

FCA, +

Visit Broker
Review
4.5
  • Choice of four professional trading platforms
  • Trusted & Secure: FCA authorised and regulated
  • Choice of Forex, CFDs, Spread Betting and Binary Options

€100

FCA

Visit Broker
Review
4.5
Deposit Bonus
10%
+ Cash rebates on trades
  • World class trading platform
  • Expert market analysis
  • FCA Regulated and traded on the LSE

0

FSA

Visit Broker
Review
4.5
Up to
50%
Deposit Bonus
  • Trusted, regulated broker with 10 yrs experience
  • Multi award winning company
  • Segregated accounts with leading banks

$100

+

Visit Broker
Review
4.5
Sign Up Bonus
$25
+50% Deposit Bonus (ex-EU only)
  • Free Guaranteed Stop Loss
  • Segregated funds at top tier banks
  • Fixed spreads & negative balance protection

$100

ASIC +

Visit Broker
Review
4.5
  • Tight spreads without commissions
  • Advanced charting tools

$100

CySec +

Visit Broker
Review
4.5
No Deposit
£25
+Deposit Bonus
  • Free forex signals + market research
  • Online education and webinars
  • Fee free withdrawals and deposits

$5

CySEC +

Visit Broker
Review
4
No deposit
£20
+ Up to £6000 on deposits
  • No commissions and low spreads
  • Advanced trading tools
  • Minimal account fees

€100

FCA, +

Visit Broker
Review
4
Spread Betting
50%
1st month commission bonus
  • Low cost trading with tight, fixed spreads
  • Loyalty rewards: Earn cashback as you trade
  • Choose Forex, CFDs or spread betting

$0

FCA

Visit Broker
Review
4
No deposit
$123
+100% on every deposit
  • Split second execution
  • No requotes
  • Range of accounts

$5

IFSC

Visit Broker
Review
3.5
No Deposit Up To
$100
+55% Deposit Bonus
  • 'Asia's top broker'
  • Wide choice of leverage options

$1

RAFMM +

Visit Broker
Review
3.5
Verification Bonus
$50
+40% Deposit Bonus
  • Generous Cashback Rewards for every trade
  • Leverage the wisdom of the crowds to inform your positions
  • Fast, simple signup

$250

CySec

Visit Broker
Review
3.5
Up to
50%
Deposit Bonus
  • Instant fund withdrawals - no commissions
  • Tight spreads from 0.1 points
  • Unlimited leverage

-

FDR ( +

Visit Broker
Review
3.5
Cashback
$5000
on your trades
  • 24 hr Live Support
  • Fully Regulated and Licenced EU Broker
  • User- friendly trading platform

$100

CySEC +

Visit Broker
Review
3.5
Super Charged
100%
Deposit Bonus
  • 8 Trading Platforms
  • Spreads from 0.1 Pips
  • $0 fees on deposits

$5

FSC +

Visit Broker
Review
3
Up to
100%
Deposit Bonus + Cashback
  • Trusted by 100,000s of traders
  • Fully licensed in the EU by CySec
  • Tight spreads and fast withdrawals

$100

FSC +

Visit Broker
Review
2.5

$1

FSC

Visit Broker
Review
0
Up to
50%
Deposit Bonus
  • 0.0 pip spread pro accounts
  • Instant deposit

$10

FSP +

Visit Broker
Review

As always, you will not be obliged to make these calculations, as your forex platform will place the Bollinger bands on the chart for you. But you should understand how they work.

As you know, working with moving averages is a basic concept in technical analysis by forex traders. Bollinger introduced the idea of using standard deviation along with moving averages.

Standard deviation measures the amount of variability or dispersion around an average. Standard deviation is also a measure of volatility. Generally speaking, dispersion is the difference between the actual value and the average value.

By definition, one standard deviation includes about 68% of all data points from the average in what is referred to as a normal distribution pattern, while two standard deviations include about 95% of all data points.

Bollinger Bands consist of a middle band with two outer bands. The middle band is a simple moving average that is usually set at 20 periods.

A simple moving average is used because the standard deviation formula also uses a simple moving average. The look-back period for the standard deviation is the same as for the simple moving average.

The outer bands are usually set 2 standard deviations above and below the middle band.

The Bollinger Bands show the dispersal of rates when compared to the moving average, thus creating buy and sell channels. The area between the moving average line and each band produces a range, or channel.

The area above the moving average is referred to as the buy channel as spot rates displayed in this region remain higher than the moving average and suggest upward momentum.

The sell channel is created by spot rates falling below the moving average. As the spot rate is declining more rapidly than the moving average, it suggests that the exchange rate has downward momentum.

Moves above or below the bands are not signals per se. As Bollinger puts it, moves that touch or exceed the bands are not signals, but rather "tags".

On the face of it, a move to the upper band shows strength, while a sharp move to the lower band shows weakness. Momentum oscillators work much the same way.

Overbought is not necessarily bullish. It takes strength to reach overbought levels and overbought conditions can extend in a strong uptrend. Similarly, prices can "walk the band" with numerous touches during a strong uptrend.

It’s important to learn to use Bollinger Bands in combination with pattern observation and other indicators. Used in this way, they are a powerful aid to trading.

English

Related Articles

  • What are Forex Indicators? A forex trader is always looking at the best point to enter a trade and to exit one. As a trader studies the charts, he...
  • One of the simplest forex indicators to understand is the moving average. You probably know that an average is sum of a given series of numbers...
  • One very important forex trading indicator that is based on moving averages is called the Moving Average Convergence Divergence, or the “MACD.” Many...
  • The word stochastic is derived from the Greek meaning "to guess" or "to aim." The term's application in investment is to ‘guess at’ the likelihood of...
  • Momentum trading is a particularly popular approach to forex. Momentum trading is a strategy that aims to capitalize on the continuance of existing...
  • The Relative Strength Index (RSI) is an stochiastic oscillator that moves up and down in response to changes in market rates. It has garnered great...

Featured Brokers

 

Risk Warning

 

Your capital is at risk. Trading in Forex and Contracts for Difference (CFDs) is highly speculative and involves a significant risk of loss.  The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This website is provided for informational purposes only and in no way constitutes financial advice. A featured listing does not constitute a recommendation or endorsement.

About ForexTrading.Company

Forex Trading.Company was established to provide global traders a deep and insightful source of information on forex trading, its key strategies and indicators. With guides for everyone from beginner traders in Bangladesh to advanced strategists in Hong Kong we want the world trading community to benefit from our in-depth broker reviews, features, and commentary. We list the world's top regulated and authorised brokers suitable for a global audience.

We aim to think global, act local with our website, so that whether you're in Asia, Europe or Africa you can gain from our content on the world's biggest market.

About Us & Contact