in News 18/09/2013 77 Views

When you look at trading on the forex live market you need to consider the analysis that you are going to do.  There are two ways that you can analyse the market and they are technically and fundamentally.  When you use technical analysis you are going to be using technical indicators on the forex live charts.  One of the indicators that you could use is the Bollinger Bands.  It is important that you know what Bollinger Bands are and how they can help you analyse and trade on the forex live market.

What are Bollinger Bands?

Bollinger Bands are a technical indicator that you can apply to the forex charts.  This indicator is made up of three lines which is an exponential moving average in the middle and price channels on the top and bottom.  The Bollinger Bands do not work in the same manner as the moving average.   Moving averages use a percentage calculation to determine what the market is doing.  Bollinger Bands will add and subtract the standard deviation calculation.

Using Bollinger Bands for Forex Live Trading

Bollinger Bands are often used in forex live trading because of their help with trend identification.  You can also use the Bollinger Bands to determine your entry and exit points for the trade.  The ways that this is done will vary depending on the strategy you are going to be using.  Different strategies will use Bollinger Bands in different ways.  There are also a number of strategies that combine the Bollinger Bands with other indicators.

Bollinger Bands with Trends

A lot of traders use Bollinger Bands to help with trend trading.  This indicator is often used to determine the over-bought and over-sold levels of a trend.  When you use these levels you can also determine when you should be opening and closing positions.

The most commonly used method of trading with Bollinger Bands on trends is to use the top and bottom lines as over-bought and over-sold lines.  When the price action moves toward one of the band lines you should close the trade.  However, when the price moves away from the lines you should open a position.

Of course, you should never actually use the Bollinger Bands on its own.  It is recommended that you use Bollinger Bands with other indicators.  The other indicators should verify what the Bollinger Bands are telling you.  One of the most commonly used additional indicators is the MACD.  This volume indicator can verify the over-bought and over-sold levels that are offered by the Bollinger Bands.

The Problems with Bollinger Bands

As with all technical indicators, there are going to be some problems that you need to know about.  The main problem is that the Bollinger Bands were not actually created to work as buying and selling signals.  The indicator was created more to gauge the trend then to tell you when you should trade on it.  This makes it harder to use without facing redundancy on the charts.  When you have indicators on your charts you should never have more than one indicator looking at the same information.