Bollinger band breakout trading forex

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Traders could identify trend direction based on the location of price in relation to its midline, as well as the slope of the midline. The outer bands are used for a variety of purposes. As a momentum indicator, traders could identify a strong momentum whenever price would breakout of the Bollinger Bands and stay close to one of the outer bands.

It could also be used to identify the exact opposite, which is a probable mean reversal. Prices that are beyond the outer bands are considered overbought or oversold. If price action shows signs of rejection of the outer bands, then price might start to reverse.

Lastly, it could also be used as a volatility indicator. The bands would simply contract during a contraction phase and expand during an expansion phase. It is composed of two modified moving average lines. The faster line is color blue while the slower line is color red. These lines act as a moving average crossover indicator. Bullish trends are indicated by the blue line being above the red line.

Inversely, bearish trends are indicated by the blue line being below the red line. As such, crossovers of the two lines would indicate a probable trend reversal. The lines are characteristically very smooth. In this strategy, we are taking advantage of market volatility and support and resistance levels.

The support and resistance levels give us price structure to zero in on in order to keep yourself from trading just anywhere on the chart. We are using price structure and not a moving average dynamic support and resistance???? The Bollinger band will measure volatility in the market and when price action tests and there is a breakout of the upper band or lower band, we know that higher volatility has come into the market and this volatility breakout can be trading gold.

This type of price action and market momentum can give us a trading edge that we can exploit. Price action and momentum is one of the edges I look to exploit every single week in my free Forex setups and signals that are posted. Sign up for free so you can be alerted to the charts once posted!

The middle band, the moving average, can be used as indication of the current short term trend of the market you are trading. I did fine with day trading but I started trading to have more free time — day trading is a JOB. You can use any time frame you like however for some guideline, You can use the one hour chart however keep profit expectations in line with the smaller swing potential Four hour charts are a nice separation between day and swing trading but there are many low volatility times in Forex and you may be seeing a band squeeze which would be common during sessions like Asian Daily charts are my preference for a lot of reasons especially because there is a lot of random types of movement in Forex.

Currency pairs are up to you but also keep in mind that some currency pairs move more than others. Of course we are using the Bollinger Band indicator with a setting of 20 for the moving average and a standard deviation of 2. Of course on the lower time frame you may have many structure levels that are tested many times. On the daily chart, you may be looking at singular pivot areas that may or may not be support or resistance. That is why you may need to see price at that level twice before considering it a valid level.