Bollinger Bands
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Bollinger Bands
Bollinger Bands
Bollinger Bands are an Oscillator based indicator so should be used with say Chart Patterns, Trend Lines, S&R ie not another oscillator
Bollinger Bands were the first universally approved indicator to show us volatility was dynamic not static
The tell us whether the market is loud (far apart) or quiet (close bands)The purpose is to show is markets highs and lows relatively speaking ie
markets are high at the upper band and low at the lowerPrice tends to return to the middle band!Bollinger Bands act as Dynamic Support and ResistanceA close outside these band can be a breakout signal or you may see a
Bollinger Bounce back to the centre line
There are 3 bandsThe middle band measures the intermediate trend, hence usually a smaThe out bands are similar with a standard deviation apart
Possible Buy Signal
Top Bollinger Band moves to test the intra-day high, at the same time we see the start of a bounce from the bottom Bollinger Band
Once this is confirmed via candle formation or other indicators we have a confirmed Buy Signal likely to test the previous highs
Additionally we notice the bands were constricted/tightened prior to their ultimate expansion and than rapidly shot out hence signalling and trend change or intensification
Centre point of Bollinger Band can also be a major obstacle
The most frequent way to trade Bollinger Bands is to buy at the bottom and sell at the top, particularly where other indicators confirm this
Example 1: €/$ 1 Day Chart - Buy 2/12/10 and 12/1/11 support area/zone at 1.2900/1.3000 Close outside lower band – 12/1/11 and rally up through support
gives confirmed Bollinger Bounce – bands also widened telling the start of a dramatic move was occurring
Additionally we see upper Bollinger Band is testing 1.3400 Another Buy signal on 18/1/11 shows confirmed breach of
Resistance at 1.34 and still widened bands
Example 1 - €/$
The most frequent way to trade Bollinger Bands is to buy at the bottom and sell at the top, particularly where other indicators confirm this
Example 2: €/$ 1 Day Chart - Buy 14/2/11 exits lower band and rallies towards centre line with
stronger confirmation at 16/2/11 Candle Patterns show market floor Also previous resistance new support at 1.3400/1.3500
Example 2 - €/$
Current €/$ Example
Example 3: €/$ 1 Day Chart - Sell The market is at 1.4000 psychological barrier and Resistance Bollinger bands are narrowing so a breakout or reversal appears
imminent A trade may exist either above the current bands for an entry order
or below the centre line for a sell position
Example 3 - €/$
Example 4: Crude Oil 1 Day Chart - Sell Crude Oil has been pulling back from over 2 year highs on market
fundamentals Passed centre line on Bollinger Bands and appears to be gaining
momentum No major obstacle from a dropping perspective in near future
Example 4 – Crude Oil
Example 5: S&P500 1 Day Chart Market Floor at 1270 Close outside lower band and extremely strong rally to centre band
since Extremely bullish candle today Fundamentals driving market at moment as a result of Japanese
equation Large upside potential
Example 5 – S&P 500
Example 6: GBP/USD 1 Day Chart Previous Resistance at 1.6000 that turned into Support Needs to be strong confirmation towards centre line for trade
Example 6 – GBPUSD
Example 7: EUR/GBP 1 Day Chart .8650 strong resistance over time, bounce at outer band and close
below 0.8650, today's candle dictates how probable the trade is and its close above or below 0.8650 dictates if it’s the start of a new uptrend or return to the range
Example 7 – EUR/GBP