Advanced Bollinger EURUSD
The Bollinger band indicator uses a statistical measure known as the standard deviation to determine a possible level of support or resistance.
This is a specific use of a broader concept known as the volatility channel. A volatility channel draws lines above and below a central price measure.
These lines, also called Bollinger bands or curves, widen or contract according to the volatility or lack of volatility of the market in question.
Bollinger Bands materialize by two lines, both above and below a central moving average, that encompass price.
The Advanced Bollinger indicator also incorporates my iTrend indicator, which should be used to confirm the change in trend.
Advanced Bollinger suggests Take Profit points and calculates the chances of reaching the determined point.
It incorporates alarms on the platform, as well as on the smartphone through the MT4 app and messages to email
What are the best parameters for Bollinger Bands?
In the default setting, the number of periods in which the moving average is calculated is 20, while the standard deviation multiplied by 2 will set the band values
upper and lower.
It turns out that with these types of parameters, statistics show that 95% of the price should stay within these bands.
Bollinger Bands Interpretation
Bollinger Bands can be interpreted in different ways depending on your behavior.
The most basic interpretation of Bollinger Bands is as follows:
- The upper band shows a statistically high level.
- The lower band shows a statistically low level.
- The central Bollinger band is correlated with market volatility.
The standard deviation increases as the price ranges widen, while it decreases in the narrower trading ranges.
How do Bollinger bands work? In summary:
- In a more volatile market, Bollinger bands expand
- In a less volatile market, Bollinger bands tighten
This means that the analysis of Bollinger bands inherently takes into account the volatility of the market.
In fact, with regard to this indicator, we can observe different phases depending on whether the market is in range or trend.
- Since the bands represent the volatility of the market, the larger the gap between the bands, the more volatile the market will be.
This makes it possible to identify volatile situations and, by default, periods in which there is little volatility in the asset.
Remember that 95% of the price normally stays within the Bollinger Bands.
Depending on the market performance, a phase of volatility is followed by a period of calm or range.
- If in periods of strong movement the bands deviate more than usual, during the range periods, the process is reversed and an approach of these same bands is observed, informing us of the market context in which we are evolving at this precise moment.
How to use Bollinger Bands to identify the trend
When Bollinger Bands deviate, the slope of the bands will follow that of the central moving average, and thus go up and down.
The trend phases are mainly initiated by the break of the previous range, materialized by a candle outside one of the two outer bands, well above or below the
Trend traders will seek price close beyond the Bollinger bands in order to capture range breakouts and take advantage of the new trend as soon as possible.
Either up or down, a close of the candle on the other side of the bands can indicate momentum and the resumption of volatility.
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