How to Use Bollinger Bands

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Each time you make it to the next grade you continue to add more and more tools to your trader’s technical analysis (TA) toolbox.You wouldn’t use a hammer on a screw, right? Nor would you use a buzz saw to drive in nails.To get more news about Bollinger Band, you can visit wikifx.com official website.

So, the more tools you have, the better you can ADAPT to the ever-changing market environment.
Or if you want to focus on a few specific trading environments or tools, that’s cool too.
It’s good to have a specialist when installing your electricity or plumbing in a house, just like it’s cool to be a Bollinger Bands or Moving Average specialist.For this lesson, as you learn about these indicators, think of each as a new tool that you can add to that toolbox of yours.
You might not necessarily use all of these tools, but it’s always nice to have plenty of options, right?

You might even find one that you understand and comfortable enough to master on its own. Now, enough about tools already!Bollinger Bands, a technical indicator developed by John Bollinger, are used to measure a market’s volatility and identify “overbought” or “oversold” conditions.

Basically, this little tool tells us whether the market is quiet or whether the market is LOUD!When the market is quiet, the bands contract and when the market is LOUD, the bands expand.

Look at the chart below. The Bollinger Bands (BB) is a chart overlay indicator meaning it’s displayed over the price.Notice how when the price is quiet, the bands are close together. When the price moves up, the bands spread apart.

The upper and lower bands measure volatility or the degree in the variation of prices over time.Because Bollinger Bands measure volatility, the bands adjust automatically to changing market conditions.

That’s all there is to it. Yes, we could go on and bore you by going into the history of the Bollinger Bands, how it is calculated, the mathematical formulas behind it, and so on and so forth, but we really didn’t feel like typing it all out.Most charting programs default to a 20-period, which is fine for most traders, but you can experiment with different moving average lengths after you get a little experience applying Bollinger Bands.

The upper and lower bands, by default, represent two standard deviations above and below the middle line (moving average).The concept of standard deviation (SD) is just a measure of how spread out numbers are.

If the upper and lower bands are 1 standard deviation, this means that about 68% of price moves that have occurred recently are CONTAINED within these bands.

If the upper and lower bands are 2 standard deviations, this means that about 95% of price moves that have occurred recently are CONTAINED within these bands.As you can see, the higher the value of SD you use for the bands, the more prices the bands “capture”.

You can try out different standard deviations for the bands once you become more familiar with how they work.

In all honesty, to get started, you don’t need to know most of this stuff. We think it’s more important that we show you some ways you can apply the Bollinger Bands to your trading.

Note: If you really want to learn about the calculations of Bollinger Bands, check out John’s book, Bollinger on Bollinger Bands, or check out our lovely Forexpedia page on Bollinger Bands.