How to Use in Trading

When the price touches the upper band, it is considered overbought, which can trigger a sell signal. Conversely, when the price touches the lower band, it is oversold and can trigger a buy signal.

However, the most effective strategy always respects the prevailing trend:

• In a downtrend, focus on selling entries near the upper band. The price target should be near the lower band.
• In an uptrend, look for buying opportunities near the lower band, with price targets set at the upper band.

Trading with the trend increases the probability of success when using the bollinger bands indicator.

Using Bollinger Bands as a Volatility Indicator

Since bollinger bands reflect market volatility, they can also be used to anticipate possible breakouts. A period of tight bands (low volatility) often precedes strong price movements. When the bands start to widen, it suggests that the market is gaining momentum and a breakout is likely.

Summary

The bollinger bands indicator is an essential tool for forex traders looking to identify overbought and oversold conditions and measure market volatility. Using this strategy in line with the prevailing trend improves trade timing and outcomes.

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