When the market becomes more volatile, the bands will correspond by widening and moving away form the middle line. When the market slows down and becomes less volatile, the bands will move closer together. It is very simple to identify dominating price direction by simply answering the question: in what part of the Bollinger Bands the price is currently trading? And just in case you’ve missed the beginning of the trend, Bollinger Bands can help you get in the trend with good bollinger bands indicator forex paling to reward ratio on a pullback.
Simply look for dips towards the middle Bollinger Bands line and enter in the direction of the trend. It is similar to a quiet time before the storm. The more time passes while price is contained within the narrow Bollinger Bands range, the more aggressive and extensive breakout is expected. When price moves and closes outside the Bollinger upper or lower bands, it implies a continuation of the trend. With it Bollinger Bands continue to widen as volatility rises. But it is not always straight forward: at some point closing outside Bollinger Bands will mean price exhaustion and upcoming trend reversal.
As a rule, a candle closing outside Bollinger Bands followed later by a candle closing inside the Bollinger Bands serves as an early signal of forming trend reversal. Since long aggressive trend develop not that often, there will be on general more reversals than continuation cases, still only filter signals form other indicators may help to spot true and false market tops and bottoms. Speaking of the last, Bollinger Bands are also capable of aiding double top and double bottom pattern recognition and trading. A double top or M pattern is a sell setup. In fact, a very conservative trading approach requires price to cross and close on the other side of Bollinger Bands middle line before the trend change is confirmed.
Forex traders identify prevailing trends and confirm trading signals. The trademark is registered for “Financial analysis and research services”. I’ll add some examples and descriptions with time. I never knew bollinger bands had so much to tell.
Great Job, but could you put a file link for us to free download these indicators int our MT4, to work on them live trading. BB’s already come with the Metatrader. What it does, it creates a set of channels, the borders of which can be effectively used to gauge the strength of a trend. I had seen several strategies and explanations before but, until reading your explanation the light never came on about how useful Bollinger Bands are. Hey, you were talking about using 2 sets of Bollinger bands, how do you turn on the second set in your metatrader? 2 sets, if that’s what you mean. 20, 1 if that’s where you stuck, otherwise, please provide more details.