Bollinger Bands – a simple yet powerful indicator, ideal for traders who like visual style of trading.
Bollinger Bands: quick summary
Created by John Bollinger, the Bollinger Bands indicator measures market volatility and provides a lot of useful information:
- trend direction
- trend continuation or pausing
- periods of market consolidation
- periods of upcoming large volatility breakouts
- relative market tops and bottoms and price targets.
Bollinger Bands interpretation
Bollinger Bands indicator consists of three bands, which 85% of the time retain price within their boundaries:
- Simple moving average (SMA) in the middle (with default value of 20)
- Lower band - SMA minus 2 standard deviations
- Upper band - SMA plus 2 standard deviations
The default value for Bollinger Bands in Forex is (20,2) - the settings we'll be using for our screenshots.
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.
How to trade with Bollinger Bands
Price moves in upper bands channel – uptrend, lower - downtrend
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? If price stays above the middle line – in the upper channel – we’ve got a prevailing uptrend. If below the middle line – in the lower channel – we have a prevailing downtrend.
And just in case you’ve missed the beginning of the trend, Bollinger Bands can help you get in the trend with good risk to reward ratio on a pullback.
Simply look for dips towards the middle Bollinger Bands line and enter in the direction of the trend.
Low volatility, followed by high volatility breakouts
When Bollinger Bands start to narrow down to the point when they are visually forming a neat tight range (measured no other way than by eye), as shown on the screenshot below, the situation signals of an upcoming increase in volatility once market breaks outside the bands. 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.
Price moves outside the bands – trend continuation
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.
Bollinger Bands alone are not able to identify continuation and reversal patterns and require support from other indicators, such as often RSI, ADX or MACD – in general all types indicators that highlight markets from a different than volatility and trend prospective (momentum, volume, market strength, divergence etc).
Trend reversal patterns with Bollinger Bands
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. It is, however, not a 100% assurance of an immediate 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.
W and M patterns with Bollinger Bands
A double top or M pattern is a sell setup. With Bollinger Bands it occurs when the following sequence take place:
- price penetrates the lower band,
- pulls back toward the middle line,
- a new subsequent low is formed, and this low is above the lower band and never has touched it.
- a setup is confirmed when price reaches and crosses the middle Bollinger line.
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.
As you have probably noticed, the middle Bollinger Bands line is simply a 20 SMA (default) line. This Simple Moving Average (SMA) is by itself a widely used stand alone indicator, which help Forex traders identify prevailing trends and confirm trading signals.
Bollinger Bands® is a registered trademark of Bollinger, John A.
The trademark is registered for "Financial analysis and research services".
Oscillators are a group of indicators that confine the theoretically infinite range of the price action into more practical limits. They were developed due to the difficulty of identifying a high or low value in the course of trading. Although we may have mental concepts of what is high or low in a typical day’s price action, the volatile and chaotic nature of trading means that any high can easily be superseded by another one that sometimes follows on the heels of a previous record, and negates it swiftly. In short, practice and experience tell us that prices in themselves are very poor guides on what constitutes an extreme value in the market, and. oscillators aim to solve this problem by identifying indicator levels that hint at tops or bottoms, and helping us in the decision process. Why should use I oscillators? There are two ways of using an oscillator. One is to determine turning points, tops and bottoms, and this style is usually useful while trading ranges only. Oscillators are also used trending markets, but in this case our only purpose is joining the trend. Highs or lows, tops or bottoms are used for entering a trade in the direction of the main trend. Types of Oscillators There are many kinds of oscillators available for the trader’s choice, and although they have different names and purposes in accordance with the creators’ vision, there are a small number of distinctions that determine which group an oscillator falls into, and where or how it can be used, as a result. It is possible to group oscillators first on the basis of their price sensitivity. Some, like the Williams Oscillator, are very sensitive to the price action. They reflect market movements accurately, but under the default configuration do not refine movements into simpler, clearer signals for the use of the trader. Oscillators like the RSI are less volatile, and are more precise in their signals, but also less sensitive to the price action, which means that two different movements of different volatility and violence may still be registered in the same range by the RSI, while the Williams Oscillator analyzes it more accurately to reflect its violent nature. Some oscillators provide limit values to determine various oversold/overbought levels, while others create their signals through the divergence/convergence phenomenon alone. In general, oscillators that provide oversold/overbought levels are useful in range patterns, others are mostly used in trend analysis. Let’s take a look at a few examples to have an idea of the different types oscillators used by traders. 1. MACD: The MACD is one of the most commonplace indicators. It is a trend indicator, and it is useless in ranging markets. MACD has no upper or lower limits, but does have a centerline and some traders use crossovers to generate trade signals. 2. RSI: RSI is another commonplace and relatively aged indicator used by range traders. It is almost useless in trending markets. 3. Williams Oscillator: An excellent tool for analyzing trending markets, especially those highly volatile, the Williams Oscillator requires some commitment and patience to get used to, but it is popular, partly due to its association with the trading legend Larry Williams. 4. Commodity Channel Index: The CCI is particularly useful for the analysis of commodities and currencies that move in cycles. It is not as popular as the others mentioned above, but it has been around for some time, and has stood to test of time. The indicators are examined in greater detail in their own article. Using the Oscillators Each oscillator has its own how-to of trading the markets. Some provide the aforementioned overbought/oversold levels for trade decisions, others are used by traders through various technical phenomena to generate the desired signals. But it is generally agreed that the best way of using this indicator type is the divergence/convergence method. Although this method is also prone to emitting false signals at times, it does not occur as frequently as the other technical events such as crossovers or the breach of overbought/oversold levels, and is therefore preferred over other styles of analysis. Conclusions Oscillators can be used in ranging and trending markets, and since, depending on the timeframe, even a range pattern can be broken down to smaller trends, it can also be possible to use trend oscillators in range trading as well. Creativity and experience are the main requirements for the successful use of these versatile technical tools. If you seek to use them in your own trading, it is a good idea to do a lot of backtesting, and demo trading just to get used to the parameters, and to gain an idea of what works and what does not. In time, your own trading style will develop which will determine the indicator types that you enjoy most and find most versatile and useful for you. You can begin by studying the various articles on oscillators at this website.
Metatrader Indicators:Price action channel formed by two smoothed moving averages with High and Low (3 periods);Stochastic Cross Alert indicator (3,2,2);Brian Trend indicator;ATR Ratio indicator (7, 49, trigger 1.0).Rules for 5min Binary Options Strategy High Low :Stochastic Cross AlertTrade only in trend. The trend is determined by Brian Trend Indicator.Buy callBrian Trend Blue dots;Stochastic cross alert green arrow (3,2.2);ATR Ratio value>trigger line (>1.0);If these conditions are agreed, when you see the blue arrow, buy a Options Binary call only if the price of the candle alert is into the price action channel .Buy PutBrian Trend Red dots;Stochastic cross alert red arrow (3,2.2);ATR Ratio value>trigger line (>1.0);If these conditions are agreed, when you see the red arrow, buy a Options binary putonly if the price of the candle alert is into the price action channel.
Scans multiple symbols looking for when the price crosses a pivot point then it alerts the trader.Pivot Point Types Standard Fibonacci Woodie Camarilla Pivot Point Time Frames Daily Weekly Monthly More Features Toggle false/true for popup or mobile alerts Set alert wait interval between same alert message Time frames toggle false/true for daily/weekly/monthly pivot point cross alerts Set Symbol prefix (if none leave blank)