How to use Bollinger bands to anticipate your forex trade’s next move

Julie Brownlee, Fsp Invest, 15 Oct. 2014

Tags: bollinger bands, what are bollinger bands, using bollinger bands, forex trade, trading forex, forex, market,

Bollinger bands are a great tool to use as part of your forex trading strategy.

You can use them to help you trade whatever the forex market is doing.

So what can Bollinger bands tell you?

Let’s take a closer look…

What are Bollinger bands?

The basis of Bollinger bands are moving averages. Looking at a chart showing Bollinger bands you’ll see three lines.

The middle line is the moving average.

The upper line is the moving average plus X standard deviations. Most traders opt for two standard deviations. This shows the likely price movement taking into account volatility.

The lower line is the moving average minus X standard deviations.

Let’s have a look at how Bollinger bands work in different types of markets…

Bollinger bands in trending markets

If there’s a trending market, the currency pair price will push in one direction.

When you look at the Bollinger bands, you’ll see the currency pair price pushing on the upper or lower lines as it moves in that direction.

Chart of Bollinger bands

Bollinger bands in non-trending markets

In non-trending markets, in other words range bound or choppy markets, Bollinger bands can act like barriers to a currency pair price.

Have a look at the chart below…

Chart of Bollinger bands

And this is why Bollinger bands are so useful helping you to find forex trades.

How you know what type of market you’re in

There are different indicators that you can use to show you what type of market you’re in.

The average directional index or ADX, is one of these. It gives you a reading of how strong a trend is. If it’s over 25, it’s usually a strong trend. Below 25 is usually a weak trend.

This can tell you a lot about volatility too, Max Munroe in Forex Round-Up explains.

Bollinger bands work great in range bound environments. You can use them to help you work out where a currency price is going.

So there you have it, how to use Bollinger bands to anticipate you forex trade’s next move

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