Forex Technical Analysis Articles - Volatility Indicators - Conclusion

Technical Analysis

1. Introduction

2. Construction

3. Interpretation of Bands

4. Squeezes and Bulges

5. Price Action in a Trending Market

6. Price Targets in Ranging Markets

7. Double Bottom

8. Double Top

9. Conclusion

Bollinger Bands are a very popular indicator and the article describes many ways on how to use it. However, like most technical indicators, it should not be used alone. Bollinger Bands work best when combined with overbought/oversold oscillators. Since Bollinger Bands already take into account volatility and trend, a trader should not use indicators that duplicate this information. Instead indicators that measure volume, momentum, sentiment, open interest are better suited companions for the Bollinger Bands indicator. It is with this information in mind that the general rules presented here should not be taken by themselves as trading strategies.

Bollinger Bands Summary
Bollinger Bands act as a measure of volatility that gives all sorts of information including trend identification; some buy and sell signals, and profit price targets. One of the standard indicators used by all traders.
Trend Identification
Interpretation	Description	Results
1. Volatility	Bands widen Bands shrink	Increase in volatility Decrease in volatility
2. Consolidation – “Squeeze”	When bands shrink tightly	Breakout eminent
3. Exuberance of Current Trend – “Bulge”	Bands widen too much	A reversal is in the works
4. Continuation	Price action closes above upper band/below lower band in subsequent sessions	Continuation of upward/downward trend
Signals
1. Double Top	Peak closes above upper band then next peak closes below upper band	Sell setup or signal
2. Double Bottom	Low closes below bottom band then next low closes above bottom band	Buy setup or signal
3. Price Targets (In ranging market)	Price bounced of lower band and approaching upper band	Band can be used as a profit target for long position
3. Price Targets (In ranging market)	Price bounced of upper band and approaching lower band.	Band can be used as a profit target for short position.

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