Bollinger Bands (BB)
BOLLINGER BAND are a trending indicator that can show you not only what direction a currency pair is going but also how volatile the price movement of the currency pair is. Bollinger bands consist of two bands—an upper band and a lower band—and a moving average and are generally plotted on top of the price movement of a chart.
Bollinger bands are typically based on a 20-period moving average. This moving average runs through the middle of the two bands. The upper band is plotted two standard deviations above the 20-period moving average. The lower band is plotted two standard deviations below the 20-period moving average.
A standard deviation is a statistical term that measures how far various closing prices diverge from the average closing price. Therefore 20-period Bollinger bands tell you how wide, or volatile, the range of closing prices has been during the past 20 periods. The more volatile the currency pair, the wider the bands will be. The less volatile the currency pair, the narrower the bands will be.
- The price cross above upper band
- The price cross below upper band
- The price cross above MA line
- The price cross below MA line
- The price cross above lower band
- The price cross below lower band
- BB length: 20
Bollinger bands provide useful breakout signals for currency pairs that have been consolidating.
Entry signal — when the bands widen and begin moving in opposite directions after a period of consolidation, you can enter the trade in the direction the price was moving when the bands began to widen.
Exit signal — when the band narrows the price of the currency pair moved away from the breakout turns and starts moving back toward the current price of the currency pair, set a trailing stop loss to take you out of the trade if the trend reverses