QUOTEX TRADING BOLLINGER BAND
QUOTEX TRADING BOLLINGER BANDS is one of the Best Indicators in Quotex which is used to measure market volatility and help you predict the best trading entry points
What is the Bollinger Bands indicator ?
Bollinger bands indicator was created by John Bollinger, a technician trader in 1980. Bollinger bands are one of the technical indicators to measure volatility and determine the direction of price movement trends.
Well, in addition to trend direction, this indicator is also used to determine overbought and oversold conditions. Characteristic of this indicator, in sideways market conditions (ranging), the price moves between two bands (bands).
Sideway is a market condition when it is flat, where there is doubt in the market. Bullish (price goes up) and bearish (price goes down) are both strong, causing sideway conditions.
This indicator is in the form of lines drawn in and around the price movement structure of a traded asset. Bollinger bands will show the relative limits of price increases or decreases. Today, this indicator is very popularly used in trading in various types of financial markets, including the forex market.
How to use bollinger bands ?
Many say that the Bollinger Bands indicator and the simple moving average are two ‘brothers’ indicators. Why are they called ‘brothers’? In addition to the fact that these two indicators both have a simple, uncomplicated appearance, and are relatively easy to understand, the Bollinger Bands indicator consists of a simple moving average (SMA) with two bands or bands that are above and below the SMA line.
Simply put, this indicator consists of three lines that move following price movements, including the upper band, middle band, and lower band. The upper band is called the upper Bollinger band and the lower band is called the lower Bollinger band. While the middle band is a moving average which is the basis for calculating the upper and lower bands. Usually, the middle band used is a simple moving average.
The upper and lower bands are determined based on the addition and subtraction of SMA values with a standard deviation. Standard deviation measures volatility to how far the price can move from its true value. The following formula or Bollinger bands formula.
- Middle band = 20-day simple moving average (SMA)
- Upper band = 20-day SMA + (20-day standard deviation of price x 2)
- Lower band = 20-day SMA – (20-day standard deviation of price x 2)
Because it also takes into account the measurement of volatility, the two bands will move according to market conditions. The greater the volatility, the wider the distance between the bands. Vice versa.
That way, bollinger bands can help you to identify current market conditions. When BB is wide, it means the market is busy. However, when BB is narrowed and tends to move flat, it means the market is in a quiet state.
In general, overbought conditions occur when the price has touched the upper band, but the closing price is still below the upper band. Meanwhile, the condition is declared oversold when the price has touched the lower band, but is still closed above the lower band.
What are the benefits of the Bollinger Bands indicator ?
1. As a measure of volatility
A measure of market volatility is usually seen in the width of the band. If the volatility is high, the distance between the two bands will widen. This usually happens when market conditions change from sideways to trending conditions. On the other hand, low market volatility is seen in the narrowing of the distance between the two bands, and usually occurs when there is a change in market conditions from trending to sideways.
Trending means that the price shows a tendency to move in one direction, either up or down. While sideways means that prices tend to move up-down-up-down within a certain range (limited).
2. Determine the position when the market is sideways
When the market tends to sideways, then an open position (entry) can be done when the price has crossed (breaks through) the SMA-20 line with a target at the nearest band level, then traders can read the Bollinger bands indicator as follows.
If the price breaks the SMA-20 level upwards, then entry is made when the candle closes above the SMA-20 with the target close position (exit) when the price reaches the upper band.
If the price breaks through the SMA-20 level downwards, then entry is made when the candle closes below the SMA-20 with the target close position (exit) when the price reaches the lower band.
3. Determine the position when the market is trending
Besides being able to be used for forex trading when the market is in a sideways condition, the Bollinger bands indicator can also be used when the market is trending, but with some rules.
Uptrend conditions occur when the price has crossed (breaks through) the upper band and the closing price is outside the band. A downtrend occurs when the price crosses the lower band and closes outside the band.
As confirmation, it can be determined from the next bar formation. If the next bar formation is completely outside the band, then a trend has formed. Apart from that, pay attention that in trending conditions, the two bands tend to move wider.