Bollinger Bands – The Bollinger Band Forex Indicator

 

The Bollinger Band indicator is a Technical Analysis forex tool that saw extensive use by stock traders in the 1990’s. The person responsible for the creation of this indicator is John Bollinger.

Bollinger Bands are mainly used to point out oversold and overbought situations in the Forex markets. It is frequently used in Forex Trading but especially in stock trading.

However, John Bollinger cannot take all the credit as the foundation of this indicator was based on a researcher named Hurst.

John Bollinger improved on Hurst’s theory by using a dynamic tool as opposed to a fixed tool. He did this by running a 20 period Moving Average through prices along with a high and low deviation band.

This indicator can be used with a broad range tools such as the Stochastic indicator in addition to RSI indicator. The interesting thing about bollinger bands when applied to price is the fact that they tend to act as support and resistance most of the time in a trending market.

With the indicator in place, price will usually remain within the deviations. If the price extends beyond the outer bands, a change in trend may be occurring. In trending instruments, the 20 moving average band is often seen as support. Additionally, resistance can be found in the outer bands.

The above situation where trending price bounces off the middle band and the upper or lower bands is called riding the band. Such instances usually mean there is a good trend in place.

Bollinger bands are seldom used on their own but in addition to other indicators. Using it with price action and candlestick charts seems to be very beneficial. It can be applied to any financial market including commodities, the stock market and the futures market. Because of this, bollinger bands are seen as an excellent tool for all types of financial market traders.

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