Lesson 7: Forex Bollinger Bands
Bollinger Bands are an indicator of volatility. They consist of a moving average as
a centreline and two price channels above and below, which are called The Bands.
When the bands expand, there is a price action and volatility is higher. Whenever the
band contracts, it shows a market consolidation.
This indicator acts as a measurement for overbought and oversold conditions in the
market. Therefore, when the price touches the upper band, it is considered
overbought - triggering a sell signal - and when it touches the lower band, it is
considered oversold and triggers a buy signal. However, remember to always trade
with the prevailing trend.
Whenever the prices indicate a down-trend, you should start looking for selling
entries around the upper band and the price target should be close to the lower
band. When the price is trending upwards, you will only look for buying entries at the
lower band and set your price targets at the upper band.