Introduction to Bollinger Bands; A Great Help In FOREX Trading.
Forex trading has become one of the most looked after occupation
for many persons around the world. This is due to its great
advantages over other capital markets and its high potential
profitability; among these advantages we can find its extremely
easy accessibility thanks to the internet and its high liquidity
and high leverage.
But in Forex as in all other speculative activities in the
capital markets there is a major problem new and experienced
traders will face every time they open their forex trading
stations. This is how to predict the behavior of the Forex
market over time in order to make the highest amount of profits
and with the less risk possible.
One of the techniques used to predict the Forex market behavior
is that based on Bollinger Bands.
These Bollinger Bands are what is called a technical trading
tool used in the capital markets (including Forex) created by
John Bollinger in the early 1980s. These technique was
formulated based on the need for adaptive trading bands and the
discovery that the volatility of the markets was a dynamic
phenomena, not a static one as was widely believed at the time.
The first thing you should notice about Bollinger
Bands is that
they consist of a set of three curves drawn in a forex chart in
relation to the currency prices. The middle band in the forex
chart represents the intermediate-term trend, and it is usually
a simple moving average, that serves as the reference base for
the upper and lower bands. The interval separating the upper and
lower bands from the middle band is calculated by using the
volatility of the market; typically the standard deviation of
the same data that were used for the average.
The default parameters used with these analysis technique is 20
periods for the average and two standard deviations for the gap
between the bands. These parameters may be adjusted to suit your
particular trading purposes.
In a future article I will talk about how these bands will give
you a very good prediction on what the market will do next,
based on the parameters and statistics built in the Bollinger
Bands.
About the author:
Adrian Pablo is a Forex freelance writer with articles published
in a number of places. Get a free report on Fibonacci Trading
and learn more about the world of trading , visit:
http://www.1-forex.com
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Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest / trade in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading.
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