How can I add Bollinger Bands to my Forex chart?
From the main menu on your Forex trading platform (here I am using Meta Trader), go to
Insert > Indicators > Trend > Bollinger Bands
Then a message box will show up with some options to change, leave everything unchanged and click OK. Note that you can change the color and the shape of the bands if you are already using these colors and shapes for other indicators, to prevent confusion.
Check the pictures here:
How can I judge the volatility of the market using Bollinger Bands?
The width of the Bollinger band’s (the space between the outter two bands) illustrate exactly the amount of volatility in the market.
- The wider Bollinger bands are, the more volatility is in the market.
- The narrower Bollinger bands are, the less volatility in the market.
How can Bollinger Bands help in placing my trade?
Many traders would wait for a breakout, where the market breaks up or down the Bollinger Bands, and then they place their trade in the direction of the breakout.
On the other hand, other traders would use the Bollinger Bands are support and resistance levels, so they would buy when the price kisses the support Bollinger band and sell when the price kisses the resistance Bollinger band.
However, whether you would go for the first method or the second, remember that you can’t be completely dependent on the Bollinger Bands and forge about the other technical analysis methods such as Fibonacci, candlestick formations or other Forex indicators. Always make sure to double and triple check your trade entries.
- Because Bollinger Bands are volatility indicator, most of the price action (arguably over 95%) should fall beween the bands.
- To confirm our buying entry using Bollinger Bands, we have to wait for a candle closing with the same bias. (blue candle for buying and red candle for selling). Then we take action.
- Most common settings for Bollinger Bands are 20 period Moving Average and 2 Deviations.. However, it is best to set the Deviations as 3.
- The price can, and sometimes does, go above the upper Bollinger band and when it does, it means we have a very strong uptrend.
- The price can (and sometimes does) go below the lower Bollinger band and when it does, it means we have a very strong downtrend.
- IN TRENDING MARKETS: Some traders change the Deviations settings to 1. And they buy when they see an uptrend and the price breaks out of the upper Bollinger band. Same traders would sell when they see a downtrend and the price breaks out of the lower Bollinger band.
- IN RANGING MARKET: Bollinger Bands should help you determine entry locations. It works as support and resistance locator. In this case, it is advised to use 50 period moving average and “2” standard deviations. In this case, to confirm our ranging market, we should have horizontal bands and the price should not try too hard to touch the bands.
- After having the bands going horizontal and the market is ranging for a while, we should expect the price to start trending again, usually in the same direction as it did before going in range. We should look for support (lower band) to place our trade at (in case the previous trend before the ranging was an uptrend. On the other hand, if the previous market was a downtrend, we should look for our resistance (upper band) and place our trade there and wait for the price to fall down again.