The Basics Of Bollinger Bands®

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Please email us if you would like us to cover specific topics that are not already listed. Bollinger Bands are a technical indicator that measures volatility.

They consists of a center line and two outer bands. As the price action becomes more volatile, the outer bands move away from the center line simple moving average, while constrict during less volatile times.

The centerline is a day simple moving average. The outer bands are two Standard Deviations away from the centerline. Standard Deviation is a mathematical formula to measure volatility, so it works well for this type of indicator.

Most trading platforms do not show the centerline, because it may clutter your trading screen. The shape of the two outer bands are what define the Bollinger Band strategy.

Joel uses the day simple moving average, so you may see it on his charts.

You may see Bollinger Bands denoted in brackets 20,2. The Period and Standard Deviation are set to 20 and 2, respectively. Refer back to the Simple Moving Average formula for the first step. The past 20 candle closes are used and divided by the amount of candles.

The Standard Deviation is a little more tricky to understand. The spreadsheet below is a working example of Bollinger Bands with all formula calculations.

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You could use the AVERAGE function, however this example splits the sum and division so it's clear. Copy or Download Example. When a trader learns how to use Bollinger Bands, the first two concepts are identifying when a currency pair is overbought or oversold. If the price action touches:.

In total, there are 22 rules that John Bollinger created when integrating Bollinger Bands as a trading system. Download 22 Bollinger Band Rules. Joel recommends combining the Bollinger Bands with the RSI indicator. They complement one another very well. There are two types of tops that you need to know about:.

If a currency pair has low volatility, the Bollinger Bands contract in size, which brings them closer to the centerline. As this happens, the price action is also squeezed.

Often the Bollinger Band squeeze happens along with other technical indicators converging, so the price action shoots off like an elastic band when it breaks free of the consolidation area. Forex Guide What is Forex? Bollinger Bands Formula You may see Bollinger Bands denoted in brackets 20,2. Forex Analysis Technical Analysis Fundamental Analysis Market Movers Bitcoin Analysis Bitcoin Technicals Bitcoin Fundamentals.

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