Bollinger Bands (BB) is a technical indicator that can be applied to any financial market, including the Forex, CFD and commodities markets. Although old, it is beloved and used by the biggest Wall Street players.
The indicator sets two boundaries around the short-run average (MA) of price movement (mid-channel).
The main purpose of the indicator is to indicate relatively high and low extreme price levels, showing the upper and lower limits created by adding and subtracting the average real range.
Volatility increases as the distance between the upper and lower boundaries widens and shrinks as the distance between the two boundaries narrows.
Setting the indicator:
Two BBs are used and overlapped, one with standard deviation 2 and the other 1.
The strategy is appropriate to use with martket structure – supports and resistances with breakouts after consolidation. BB is in the form of a tight balloon, followed by channel inflation and extreme bullish / bearish price movement.
Reaching the price in the external channels is a sign of very high volatility, followed by a break of resistance / support and a closing bar below / above them – a sign of entry.
To exit – reverse movement of the price punching 20MA.
The strategy works best on charts of 30 minutes up and can be combined with an optional oscillator.
Junior Trader Daniel Dimitrov