Bollinger Bands A Great Help In Forex Trading.

By: Adrian Pablo
Submitted: 2007-01-17 16:17:22
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Forex trading is a great activity that can earn you lots of money. If you know what to do and have invested the time needed to understand how the currency markets behave you will surely have a profitable experience with forex trading.

The main problem any trader encounters when starting his trading career in the currency markets is how to predict what the market will do in a given future time period with good accuracy so that he can place the correct orders and pull a profit from a given market movement.

There are a number of techniques and indicator that can give the trader a pretty good hint of what the market will do next. One of those techniques used to predict the Forex market behavior is that based on what is known as Bollinger Bands.

Bollinger Bands are a technical trading tool used in the capital markets (including Forex) created by John Bollinger in the early 1980s. The way this indicator was formulated is 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.

Bollinger Bands consist of a set of three curves drawn onto a forex chart in relation to the currency prices. The middle band drawn in the forex chart represents the intermediate-term trend, and it is usually a simple moving average and it 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 distance of the external bands from the middle band is a standard deviation of the same data that was used for the moving 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. But these parameters may always be adjusted to suit the particular trading purposes of the forex trader using the indicator.

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Article source: Expert Articles

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