How to Use Bollinger Bands Indicators

I like your discussion of the Bollinger Bands indicator, because few traders understand how to use it and there are still many who do not understand but with your discussion by explaining how to use this indicator makes beginner traders can learn together to know it, and in my opinion it is very helpful

Bollinger Bands is one of the technical indicators to measure volatility and determine the direction of price movement trends. In addition to the direction of the trend, this indicator is also used to determine overbought and oversold conditions. Characteristic, in market conditions sideways (ranging), the price moves between two bands (ribbon). This indicator was created by John Bollinger, a technician trader in 1980. Now, this indicator is very popularly used in trading in various types of financial markets, including the forex market.

 

Elements in Bollinger Bands Indicators
The Bollinger Bands indicator consists of a Simple Moving Average (SMA) with two bands or bands that are above and below the SMA line. The upper band is called Upper Bollinger Band and the lower band is called Lower Bollinger Band.

The Upper and Lower Bands are determined based on the addition and subtraction of the SMA value with the standard deviation. While the standard deviation measures volatility to how far the price can move from the true value. Formulation:

Upper Band = SMA (n) + k * Standard Deviation (n)

Lower Band = SMA (n) - k * Standard Deviation (n)

n = measurement period (default: 2)

Because it also takes into account the measurement of volatility, the two bands will move according to market conditions.

Bollinger Bands can be found on trading platforms in general, including Metatrader4 (MT4) and Metatrader5 (MT5) with the default SMA parameters: 20 periods, and standard deviations: 2. To place them, look for the Insert menu >>> Indicators >>> Trend >> > Bollinger Bands. After being applied to the chart, Bollinger Bands will appear similar to the following EUR / USD Daily screenshots:

 

Example of Bollinger Bands

 

In general, an overbought condition occurs when the price has touched the Upper Band, but the closing price (Close) is still below the Upper Band. While the condition was stated oversold if the price had touched the Lower Band, but it was still closed above the Lower Band.

 

 

Bollinger Bands as a Measurer of Volatility
A measure of market volatility is seen in the width of the band. If the volatility is high, the distance between the two bands will be wider, as can be seen on the left side of the image above. It usually occurs when changing sideways conditions become trending conditions. On the contrary, low market volatility is seen at the narrowing distance between the two bands, and usually occurs when there is a change from trending market conditions to sideways.

Trending means that the price shows a tendency to move in one direction with, either up or down. While sideways means prices tend to move up and down in a certain range (limited).

 

 

Trading with Bollinger Bands during Sideways
When the market tends to be sideways, then an open position (entry) can be done when the price has passed (penetrated) the line of the 20-SMA with the target at the level of the closest band (example in the image below). Rules:

If the price breaks the level of the SMA-20 towards the top, the entry is done when the candle closes above the SMA-20 with the target of closing position (exit) when the price reaches the Upper Band.
If the price breaks the level of the SMA-20 towards the bottom, the entry is done when the candle closes below the SMA-20 targeting the close position (exit) when the price reaches the Lower Band.
 

Example of Bollinger Bands

 

 

Trading With Bollinger Bands When Trending
Typically, Bollinger Bands indicators are used for forex trading when the market is sideways. However, it can actually also be used during the trending market, with rules:

An uptrend occurs when the price has broken through the upper band and the closing price is outside the band.
Downtrend conditions occur when prices cross the lower band and are closed outside the band.
As a confirmation, it can be determined from the next bar formation. If the next bar formation is really outside the band, then a trend has been formed. Also, note that in trending conditions, the two bands tend to move wider.

 

Trading with Bollinger Bands during a bullish market

 

In the example above, USD / CAD broke through the upper band on June 14, 2018, and prices closed outside the upper band. The opening price of the next bar is still outside the upper band with the distance between the two bands widening. With these signals, we can enter buy with an exit level when the doji formation indicates a trend reversal is formed, or according to each Risk / Reward Ratio.

Bollinger Bands is one of the technical indicators to measure volatility and determine the direction of price movement trends. In addition to the direction of the trend, this indicator is also used to determine overbought and oversold conditions. Characteristic, in market conditions sideways (ranging), the price moves between two bands (ribbon). This indicator was created by John Bollinger, a technician trader in 1980. Now, this indicator is very popularly used in trading in various types of financial markets, including the forex market.

 

Elements in Bollinger Bands Indicators
The Bollinger Bands indicator consists of a Simple Moving Average (SMA) with two bands or bands that are above and below the SMA line. The upper band is called Upper Bollinger Band and the lower band is called Lower Bollinger Band.

The Upper and Lower Bands are determined based on the addition and subtraction of the SMA value with the standard deviation. While the standard deviation measures volatility to how far the price can move from the true value. Formulation:

Upper Band = SMA (n) + k * Standard Deviation (n)

Lower Band = SMA (n) - k * Standard Deviation (n)

n = measurement period (default: 2)

Because it also takes into account the measurement of volatility, the two bands will move according to market conditions.

Bollinger Bands can be found on trading platforms in general, including Metatrader4 (MT4) and Metatrader5 (MT5) with the default SMA parameters: 20 periods, and standard deviations: 2. To place them, look for the Insert menu >>> Indicators >>> Trend >> > Bollinger Bands. After being applied to the chart, Bollinger Bands will appear similar to the following EUR / USD Daily screenshots:

 

Example of Bollinger Bands

 

In general, an overbought condition occurs when the price has touched the Upper Band, but the closing price (Close) is still below the Upper Band. While the condition was stated oversold if the price had touched the Lower Band, but it was still closed above the Lower Band.

 

 

Bollinger Bands as a Measurer of Volatility
A measure of market volatility is seen in the width of the band. If the volatility is high, the distance between the two bands will be wider, as can be seen on the left side of the image above. It usually occurs when changing sideways conditions become trending conditions. On the contrary, low market volatility is seen at the narrowing distance between the two bands, and usually occurs when there is a change from trending market conditions to sideways.

Trending means that the price shows a tendency to move in one direction with, either up or down. While sideways means prices tend to move up and down in a certain range (limited).

 

 

Trading with Bollinger Bands during Sideways
When the market tends to be sideways, then an open position (entry) can be done when the price has passed (penetrated) the line of the 20-SMA with the target at the level of the closest band (example in the image below). Rules:

If the price breaks the level of the SMA-20 towards the top, the entry is done when the candle closes above the SMA-20 with the target of closing position (exit) when the price reaches the Upper Band.
If the price breaks the level of the SMA-20 towards the bottom, the entry is done when the candle closes below the SMA-20 targeting the close position (exit) when the price reaches the Lower Band.
 

Example of Bollinger Bands

 

 

Trading With Bollinger Bands When Trending
Typically, Bollinger Bands indicators are used for forex trading when the market is sideways. However, it can actually also be used during the trending market, with rules:

An uptrend occurs when the price has broken through the upper band and the closing price is outside the band.
Downtrend conditions occur when prices cross the lower band and are closed outside the band.
As a confirmation, it can be determined from the next bar formation. If the next bar formation is really outside the band, then a trend has been formed. Also, note that in trending conditions, the two bands tend to move wider.

 

Trading with Bollinger Bands during a bullish market

 

In the example above, USD / CAD broke through the upper band on June 14, 2018, and prices closed outside the upper band. The opening price of the next bar is still outside the upper band with the distance between the two bands widening. With these signals, we can enter buy with an exit level when the doji formation indicates a trend reversal is formed, or according to each Risk / Reward Ratio.