Home > Boards > Forex > General > Forex Education

Some Guidelines for Using Bollinger Bands for Forex

Public Reply | Private Reply | Keep | Last ReadPost New MsgReplies (2) | Next 10 | Previous | Next
Ataglance2 Member Profile
 
Followed By 37
Posts 12,176
Boards Moderated 2
Alias Born 03/28/04
160x600 placeholder
Top Stories of the Day
TOP STORIES Premier Foods Shares Seen as Undervalued -- Market Talk
Top Company News of the Day
Corn Futures Falls as Rainfall is Expected -- Daily Grain Highlights
Front Month Nymex Natural Gas Rose 10.51% This Week to Settle at $4.0600 -- Data Talk
Front Month Nymex RBOB Gasoline Rose 1.67% This Week to Settle at $2.2913 -- Data Talk
Grimmway Farms Recalls Certain Carrots Due to Risk of Salmonella
Kimberly-Clark Reports 2Q Results, Offers Guidance -- Commodity Comment
GDP Growth Expected to Accelerate in 2Q -- Data Week Ahead
Veoneer Shares Touch 52-week High, Magna Plans to Acquire Co.
AbbVie Gets FDA OK for Pediatric Skin Infection Drug
FTSE 100 Index Ends the Week 0.28% Higher at 7027.58 -- Data Talk
STOXX Europe 50 Index Ends the Week 0.84% Higher at 3558.08 -- Data Talk
CAC 40 Index Ends the Week 1.68% Higher at 6568.82 -- Data Talk
DAX Ends the Week 0.83% Higher at 15669.29 -- Data Talk
STOXX Europe 600 Index Ends the Week 1.49% Higher at 461.51 -- Data Talk
EURO STOXX 50 Index Ends the Week 1.82% Higher at 4109.10 -- Data Talk
FTSE 100 Closed Higher Despite Volatile Week
Vonovia Unlikely to Secure Enough Support From Deutsche Wohnen Shareholders to Pursue Takeover
Kimberly-Clark Keeps Forecast of Favorable FX in 2021 -- Currency Comment
U.S. Economic Growth Moderated in July -- IHS Markit
Veoneer Shares Climb on Magna Acquisition Deal
FTSE Rises, Covid-19 Strategy and Brexit Tensions Could Hit Pound
AstraZeneca's Bydureon BCise Gets U.S. Approval For Type 2 Diabetes in Pediatric Patients
Ataglance2   Sunday, 05/17/09 09:48:52 PM
Re: None
Post # of 102 
Some Guidelines for Using Bollinger Bands for Forex Trading
Bollinger Bands are widely and successfully used by forex traders worldwide. One of the great joys of having invented an analytical technique such as Bollinger Bands is seeing what other people do with it. While there are many ways to use Bollinger Bands in the forex market, following are a few rules that serve as a good beginning point.


1.Bollinger Bands provide a relative definition of high and low.


2.That relative definition can be used to compare price action and indicator action to arrive at rigorous buy and sell decisions.


3.Appropriate indicators can be derived from momentum, volume, sentiment, open interest, inter-market data, etc.


4.Volatility and trend have already been deployed in the construction of Bollinger Bands, so their use for confirmation of price action is not recommended.


5.The indicators used for confirmation should not be directly related to one another. Two indicators from the same category do not increase confirmation. Avoid colinearity.


6.Bollinger Bands can also be used to clarify pure price patterns such as M-type; tops and W-type bottoms, momentum shifts, etc.


7.Price can, and does, walk up the upper Bollinger Band and down the lower Bollinger Band.


8.Closes outside the Bollinger Bands can be continuation signals, not reversal signals--as is demonstrated by the use of Bollinger Bands in some very successful volatility-breakout systems.


9.The default parameters of 20 periods for the moving average and standard deviation calculations, and two standard deviations for the bandwidth are just that, defaults. The actual parameters needed for any given market/task may be different.


10.The average deployed should not be the best one for crossovers. Rather, it should be descriptive of the intermediate-term trend.


11.If the average is lengthened the number of standard deviations needs to be increased simultaneously; from 2 at 20 periods, to 2.1 at 50 periods. Likewise, if the average is shortened the number of standard deviations should be reduced; from 2 at 20 periods, to 1.9 at 10 periods.


12.Bollinger Bands are based upon a simple moving average. This is because a simple moving average is used in the standard deviation calculation and we wish to be logically consistent.


13.Be careful about making statistical assumptions based on the use of the standard deviation calculation in the construction of the bands. The sample size in most deployments of Bollinger Bands is too small for statistical significance and the distributions involved are rarely normal.


14.Indicators can be normalized with %b, eliminating fixed thresholds in the process.


15.Finally, tags of the bands are just that, tags not signals. A tag of the upper Bollinger Band is NOT in-and-of-itself a sell signal. A tag of the lower Bollinger Band is NOT in-and-of-itself a buy signal.


John Bollinger, CFA,CMT





Public Reply | Private Reply | Keep | Last ReadPost New MsgReplies (2) | Next 10 | Previous | Next
Follow Board Follow Board Keyboard Shortcuts Report TOS Violation
X
Current Price
Change
Volume
Detailed Quote - Discussion Board
Intraday Chart
+/- to Watchlist
Consent Preferences