Forex and Some Important Facts about Bollinger Bands.
Forex trading is nowadays
one of the most looked after occupation for many persons of all
ages around the world. This is due to its great advantages over
other capital markets and its high profitability potential;
among these advantages you will find that is extremely easy to
access a trading platform from the best forex broker firms
thanks to the internet; and also you will notice that Forex has
a high liquidity along with a high leverage.
But having a good broker firm and great trading platform is only
one part of what you need in order to make your forex trading
career a winning and profitable one. You need to have the right
knowledge and techniques in order to forecast with the best
accuracy what the market will do next. One of the techniques
used to predict the Forex market behavior is that based on
Bollinger Bands.
These Bollinger Bands are what is called a technical trading
tool and they are widely used in the capital markets (including
Forex) and were created by John Bollinger in the early 1980s.
These bands technique was formulated based on the need for
adaptive trading bands and the discovery that the volatility of
the markets was a dynamic phenomena, not a static one as was
widely believed at the time.
Bollinger Bands consist of a chart of three curves drawn in
relation to currency pairs prices. The band situated in the
middle is a measure of the intermediate-term trend and is
usually a simple moving average, that serves as the base for the
upper and lower bands. The interval between the upper, lower and
the middle bands is determined by the volatility of the market,
typically the standard deviation of the same data that were used
for the moving average. The default parameter is 20 periods and
two standard deviations above and below the middle band; of
course this may be adjusted to suit your needs.
In short, the purpose of Bollinger Bands is to provide a
relative definition of high and low price. By definition prices
are considered high when touching the upper band and low when
they touch the lower band. This relative definition can be used
by the Forex trader to compare price actions and as a very
useful indicator when the purpose of the trader is to arrive at
rigorous buy and sell decisions.