Forex is a volatile market. While profits can be huge, losses can also be equally drastic. With a market so huge and diverse, it becomes important for the traders to rely on tools that can analyze the market trends.
Forex Trading And Bollinger Bands
Manually comparing every stock and share keeping in mind the currency conversions is not possible. There are numerous software and tools that streamline the whole process. If you are a newbie, you can consider taking help from trading firms like 5bestproprietarytradingfirms.com One of the tools that every forex trader blindly trusts is Bollinger bands. No matter whether you are new or an experienced player, going by the Bollinger bands will boost your portfolio. Let us learn about this band and how it affects your financial decisions in forex trading.
What Are Bollinger Bands?
Bollinger bands are the two lines plotted two standard deviations above and below the moving average of the forex market. When a price touches the upper line, it is deemed over-brought while the one touching the lower band is termed as oversold. A wideband indicates high volatility in the market. A narrow band signals a stable or less volatile market. Traders gauge their market steps based on this band.
How To Set Up Bollinger Bands?
Take a 21-day moving average for the currency values.Take 2 standard deviations, one above the moving average and the other below it.You can set the band based on the hourly limit or as per your trading style.
Reading The Bollinger Bands
In a layman’s understanding:
Sell orders when the value reaches the upper bandBuy orders when the value reaches the lower band
Analysing Bollinger Bands
Simply interpreting Bollinger bands is not enough. You must have an analytical mind to predict the next market trend. Most new traders commit the mistake of buying or selling simply on seeing the first rise or dip near the bands. But the experts strictly warn against it. The ideal way to trade using the Bollinger bands is using the double Bollinger band strategy. In this, you need to wait to see if the market sees another rise or fall from its previous value. If that happens, then you should take the step. A hasty step can seriously affect your grade. So, it is better to be cautious.
Demerit Of Bollinger Bands
Bollinger bands cannot and do not predict market trends. They only show the current state. So, if you are looking for more of a prediction tool, it will be of no help.
The Final Say
Forex trading needs a deep understanding of the market. For best results, you should use other tools like PitView, carry trade calculator, and MACD.
