FOREX INDICATORS

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.

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