Bollinger Bands: Using Volatility As a Technical Indicator

Day traders use Bollinger Bands® as a technical indicator to display a chart reading of volatility by how tight they are around a financial instrument. The degree of tightening or widening them surrounding the price action of a financial instrument determines the level of volatility. Chart facing, a 21-day moving average (preferred period of time) is surrounded by an upper and lower Bollinger Band®. They are meant to serve as a technical indicator of overbought (wide bands) and oversold (tight bands) market conditions.

How Are Bollinger Bands® Read?

Looking at financial instrument charting software with 'tight' Bollinger Bands® applied to the price action, a significant move to the up or down side may occur soon. However, if a financial instrument chart has 'wide' bands applied to price action, this may signal a significant move is not likely to occur in the not too distant future. Tight and wide, they can also be used as a counter technical indicator of both potential low and high volatility in that present price action is used to predict a different, future market move.

With the above said, the best conditions for the indicator's use are periods of low volatility with scant price fluctuation. The more time passed in a low volatility environment, the more they will tighten around a financial instrument's price action. When tightening more than usual, the bands may be signaling an increase in future volatility.

How Can Bollinger Bands® Be Used?

When analyzing Bollinger Bands® with the intention of day trading online, do not rush to make a decision if price action breaches the top or bottom band, as this is not always an indication of an immediate market move. That said, though most price action movement occurs within the indicator, a breach of an outer band is a rare occurrence indeed, but cannot be relied on to be a guaranteed buy/sell signal. In addition, though widely used, Bollinger Bands® are actually meant to be used in tandem with two or more other technical indicators such as Relative Strength Index (RSI) and MACD.

It is important to note, before day trading based on a signal derived from Bollinger Bands® and two other indicators, backtesting historical market trends with all of these indicators is strongly suggested. Backtesting these indicators against the historical market trend you are focusing on will provide an idea of how your strategy would have performed in historical market conditions.

Article Source: Here

Tips on How To Read Forex Charts

Charts are very important in Forex exchange as they aid in monitoring the rate change of the currencies that you are trading. There are many types of charts that you can use in monitoring the change:

Line Chart

A line chart draws a line from one closing price to the next closing price. When you string the lines together you are able to see the movement of the currency pair over a period of time.

Bar Chart

This one is a little bit complex and it shows the opening and closing prices. It also shows the highs and lows of the trade. The bottom of the vertical bar shows the lowest traded price while the top of the bar shows the highest price paid.

Candlestick

This is the most popular chart used in Forex trading. The main function of this chart is to serve as a visual aid. There are many reasons why candlestick charts are common: they are easy to use, interpret and are excellent tools in helping you in identifying the market turning point.

If you are a beginner you are on the lucky side as the chart comes with cool names such as "shooting star" which helps you in remembering what a given pattern means.

How to Read A Forex Chart

Do you want to know how to read a Forex chart? Here are tips on how to go about it:

You should start by locating the chart that you want to analyze and then find a range. Remember that charts show both short periods (such as 12-24 hours) and long periods such as weeks and months. As a beginner, you should start with charts that show short periods.

To easily understand the data presented you should begin with a single data bar. Here you should locate the open and close prices that are indicated by the horizontal "pegs" on the chart bar. If the close rate is higher than the open rate, the rate is definitely trending up. If on the other hand the open rate is higher than the close rate the rate is trending down.

You should note the areas where the chart hits a low for a number of times, but it doesn't drop below a certain rate. These are important places of support where the market forces prevent the rate from plunging.

You should also locate places in the chart where there are several highs in the same range. These places indicate resistance.

You should note that both support and resistance can easily break when there is some external factor such as negative or positive news.

Article Source:Here