How to use Bollinger band in forex trading automated - article from amazines.com



Technical indicators are used for trading Stocks, futures, commodities, previous metal, energy and Forex. One of the most useful indicator is the Bollinger Band which is invented by John Bollinger to show the highness and lowness of the currency price as compare to previous price.

Bollinger Bands consist of upper and lower band with a moving average of certain period. The upper band and lower band is the difference using the standard deviation of price by multiplier. The default multiplier is x2 and the average default is 20 days moving average.

Standard Deviation

The standard deviation is use to measure the diversity of the currency price with historical price. It takes the average mean of 20 periods and then square the difference with the mean price and historical price. Add up all the differences divide by total no. of periods. Lastly square root it back to get the standard deviation. As you can see, it gives a bigger value if the average price is more larger then the historical price. This is a good measure of the diversity of the price and its direction.

Upper and Lower Band

The multiplier in this case help to provide a support and resistance level which correspond with the moving average. For price that is close to the upper Band or lower Band indicate the closeness of the price at its resistance or support level. This can surf as a trigger indicator for Buy or Sell trade.

Mid point crossing

The crossing at the moving average also can signify the changes of the price trend from low to high or high to low. By looking at the slope of the moving average, you can easily identify the price is getting stronger or weaker by crossing the moving average mid-point. This is further enhanced when the previous price touches the upper or lower band, indicating a change in the trend direction.

Double top or bottom

Bollinger Bands can be widely used in finding double top and double bottom. In Forex trading, most currency will face strong resistance when changing trend and hence a double top or double bottom will be evidently easy to spot using the upper band and lower band of a Bollinger Bands. With prices crossing the middle moving average and then back to either of the band and then back to moving average, you can see the change in the slope of the moving average and trend of the price beginning to show after the crossing. Many trades can be executed by predicting this early signal just before price breakout.

Channel trading

The upper and lower band also serves as support and resistance level for sideways moving currency. It clearly indicates provide a clear visual of doing channel trading and executing trades when near the upper and lower bands. This is particularly useful when the trend is weak and volume is high. Some trades uses convergence or divergence to pick breakout before news release or major market opening that causes high volatile to the currency volume.

In all, Bollinger band is a wonder indicator which you can set multiplier to x3 or x4 for high movement currency or x1 for low price changing times.


source http://www.amazines.com/Finance_and_Investment/article_detail.cfm/4376634?articleid=4376634






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Editorial Reviews

From the Inside Flap

In recent years, traders have turned to the foreign exchange market expecting to capture substantial profits. While the high availability of leverage within this arena can improve your chances of making money, ultimately the success of your endeavors depends upon how well you understand and operate within this market. Nobody knows this better than author Ed Ponsi. As a professional trader and leading educator of traders, Ponsi has developed a proven approach to trading today's forex market, and now, with Forex Patterns and Probabilities, he wants to share it with you.

While most books on trading deal with general concepts and shy away from specifics, Forex Patterns and Probabilities provides you with real-world strategies and a rare sense of clarity about the specific mechanics of currency trading that will allow you to take advantage of both trending and range-bound markets.
Written in a straightforward and accessible style, Forex Patterns and Probabilities will help you make the most of your time in this market. You'll be introduced to a variety of elements that are essential to forex trading success and discover the best ways to enter, exit, and manage trades. Dozens of chart examples and explanations will guide you each step of the way and allow you to "look over the shoulder" of a professional trader hard at work at his craft.

Divided into four comprehensive parts, this detailed guide:
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From the Back Cover

Praise for Forex PATTERNS & PROBABILITIES

"Ed has the experience, he has the knowledge, and he has the ability to wrap it all up into one of the most useful and insightful books on trading that I've read. You're going to be a better trader with the help of this book."
—Rob Booker, independent currency trader, and author of Adventures of a Currency Trader

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—Mike McMahon, Director of Education, Online Trading Academy

About the Author

Ed Ponsi is the President of FXEducator.com and is the former chief trading instructor for Forex Capital Markets. He is an experienced professional trader and money manager who has advised hedge funds, institutional traders, and individuals of all levels of skill and experience. Ponsi is featured on the FXEducator.com DVD series, Forex Trading with Ed Ponsi. He is a dynamic public speaker who has appeared on numerous television and radio programs, and is a frequent guest lecturer at trading conventions and seminars around the world.

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