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Refresher in Bollinger Bands and Range bound markets
December 18, 2006


Each technical indicator at our disposal has the potential to become a very effective tool in navigating the FX-market, when used properly, and under the optimal conditions. For example, the Bollinger Bands set at 2-standard deviations above and below the 20-SMA (simple moving average) measure the probable low and high prices given the market’s current state of volatility. This especially holds true during range bound markets, where the market fails to accomplish neither new high or low prices. We can see based on the following (15-minute) chart, the EURUSD has recently established quite a few relatively small trading ranges over the course of the past few days. With this in mind, as long as the market does not close at new high or low prices, the Bollinger Bands in fact do show us rather good or favorable entry prices with the assumption the market will in fact remain inside its current trading range. One important point to note, the market may at time trade to slightly new high or low prices, only to regress back towards the center of its trading range. For that reason, it’s important to wait for the current candlestick to close at a new high or low, which simply gives us the added confirmation that the market is actually breaking out of its range, as a new trend develops.