Bollinger Bands
Posted On at by Forex KnowledgeBollinger Bands come to us courtesy of John Bollinger. They are displayed as an upper and lower band plotted above and below the equity's price pattern, and are calculated at standard deviation levels. Are you scratching your head? Standard deviation equals a measure of volatility. High standard deviation levels occur when prices change dramatically (think: roller coaster). Low standard deviation values translate into quiet price movement (think: consolidation). The operative theory behind Bollinger Bands is that the price pattern tends to fluctuate within the upper and lower band. Further; when the price rises (or falls) to touch the boundary ofone band, it will then reverse andfall (or rise) to the opposite band.
What you need to know when using Bollinger Bands:
When the price moves to touch one band, it usually reverses and heads all the way to the other band (good for projecting price targets).
When the bands tighten because volatility lessens, look for a sharp price change to occur. Hey, same action as a breakout from a consolidation pattern-right? Right!
When the price pokes through and moves outside the band, that implies strength in that direction-or a trend continuation.
What you need to know when using Bollinger Bands:
When the price moves to touch one band, it usually reverses and heads all the way to the other band (good for projecting price targets).
When the bands tighten because volatility lessens, look for a sharp price change to occur. Hey, same action as a breakout from a consolidation pattern-right? Right!
When the price pokes through and moves outside the band, that implies strength in that direction-or a trend continuation.
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