Lines or Bollinger Bands are an indicator of a technical analysis of the oscillator type. A feature of such indicators is following the schedule. In other words, the lines are built according to the data that gives the price chart, and do not predict its movement. They are only the basis for analysis on the events that took place in the past.
The Bollinger lines are a combination of: – a simple moving average; – moving average plus two standard deviations; – moving average minus two standard deviations.
What are the Bollinger Bands showing?
The strategy of Bollinger lines implies the use of this indicator in combination with other tools, which allows to obtain data on the time of opening a position, its direction and exit from the market
In particular, the following features of the Bollinger line indicator can be used: – the price always tends to a simple moving average, i.e. the middle line of the indicator; – going beyond the Bollinger lines indicates an overbought or oversold market; – as a rule, no more than four bars go beyond the extreme lines then the price returns to the corridor between the upper and lower lines; – trading along the Bollinger lines involves entering the market when the price leaves the extreme lines of the indicator. In this case, the opening of a position can be both a trend and against it when trading on corrections.
In addition, the Bollinger Bands demonstrate market volatility and can be used precisely to determine the range of price fluctuations to determine the entry time and potential profitability of the transaction. The greater the distance between the extreme bands, the greater the volatility, and the greater the opportunity the trader has to earn money when opening the correct position.
Remember that with each expansion of the lines and an increase in volatility there is a rest of the market and narrowing of the indicator bands. During low volatility, there are less risks for price fluctuations, and this moment can be used by traders who use scalping strategies.
Thus, lines or Bollinger bands are one of the indicative indicators and can be used in trading systems to determine: – Overbought and oversold moments; – price volatility; – the direction of movement of the trend; – the likely reversal of the trend movement.